Question 1

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

Accepted Answer

A) $5. 
B) $12.50. 
C) $25. 
D) $125. 
A) $5. 
B) $12.50. 
C) $25. 
D) $125.

Question 2

What is the difference between "shutting down temporarily" and "exiting the industry"?

Accepted Answer

The difference between the two has to do

Question 3

The minimum point on the average variable cost curve is called

Accepted Answer

A) the shutdown point. 
B) the break-even point. 
C) the loss minimizing point. 
D) the point of diminishing returns. 
A) the shutdown point. 
B) the break-even point. 
C) the loss minimizing point. 
D) the point of diminishing returns.

Question 4

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

Accepted Answer

A) True 
 B)False

Question 5

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 6

Table 9-1
 $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$$ 
Table 9-1 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 9-1.If the market price of each camera case is $8 and the firm maximizes profit,what is the amount of the firm's profit or loss?

Accepted Answer

A) $0 (it breaks even) 
B) loss of $1,000 
C) profit of $440 
D) loss of $440 
A) $0 (it breaks even) 
B) loss of $1,000 
C) profit of $440 
D) loss of $440

Question 7

What is always true at the quantity where a firm's average total cost equals average revenue?

Accepted Answer

A) The firm's revenue is maximized. 
B) The firm's profit is maximized. 
C) The firm breaks even. 
D) Marginal cost equals marginal revenue. 
A) The firm's revenue is maximized. 
B) The firm's profit is maximized. 
C) The firm breaks even. 
D) Marginal cost equals marginal revenue.

Question 8

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

Accepted Answer

A) will usually rise. 
B) will usually fall. 
C) will usually remain stable. 
D) will eventually fall to zero. 
A) will usually rise. 
B) will usually fall. 
C) will usually remain stable. 
D) will eventually fall to zero.

Question 9

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market

Accepted Answer

A) the ease at which a new firm can enter a competitive market is low. 
B) the ease at which a new firm can enter a competitive market is high. 
C) entry into the market is blocked. 
D) entry into the market is restricted in the short run, but becomes easier in the long run. 
A) the ease at which a new firm can enter a competitive market is low. 
B) the ease at which a new firm can enter a competitive market is high. 
C) entry into the market is blocked. 
D) entry into the market is restricted in the short run, but becomes easier in the long run.

Question 10

For a perfectly competitive firm,at profit maximization

Accepted Answer

A) market price exceeds marginal cost. 
B) total revenue is maximized. 
C) marginal revenue equals marginal cost. 
D) production must occur where average cost is minimized. 
A) market price exceeds marginal cost. 
B) total revenue is maximized. 
C) marginal revenue equals marginal cost. 
D) production must occur where average cost is minimized.

Question 11

Max Shreck,an accountant,quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner,Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.Max's explicit cost amounts to $3,000 per month more than his revenue.Should Max continue operating his business?

Accepted Answer

A) Max's explicit cost exceeds his total revenue.He should shut down his tattoo parlor. 
B) Max should continue to run the tattoo parlor until his lease runs out. 
C) If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D) This cannot be determined without information on his revenue. 
A) Max's explicit cost exceeds his total revenue.He should shut down his tattoo parlor. 
B) Max should continue to run the tattoo parlor until his lease runs out. 
C) If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D) This cannot be determined without information on his revenue.

Question 12

Figure 9-16
  
-Refer to Figure 9-16.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?

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 13

Figure 9-15
  
-Refer to Figure 9-15.Assume that the medical screening industry is perfectly competitive and that some firms are 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.Which of the diagrams in the figure best describes what happens in the industry?

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 14

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 15

Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka.Molly has spent $125,000 of her own money on this project and the documentary is now complete.Molly just found out that no studio is willing to release her documentary and she must now shop it to cable television networks,where she knows she will not be able to recoup her investment.Which of the following statements regarding Molly Sharp's documentary is true?

Accepted Answer

A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B) Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. 
C) The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. 
D) The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000. 
A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. 
B) Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. 
C) The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. 
D) The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.

Question 16

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 17

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal,as more farmers choose to produce and sell organic produce at farmers' markets,what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

Accepted Answer

A) The equilibrium price is likely to increase and profits are likely to remain unchanged. 
B) The equilibrium price is likely to remain unchanged and profits are likely to increase. 
C) The equilibrium price is likely to decrease and profits are likely to decrease. 
D) The equilibrium price is likely to increase and profits are likely to increase. 
A) The equilibrium price is likely to increase and profits are likely to remain unchanged. 
B) The equilibrium price is likely to remain unchanged and profits are likely to increase. 
C) The equilibrium price is likely to decrease and profits are likely to decrease. 
D) The equilibrium price is likely to increase and profits are likely to increase.

Question 18

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?

Accepted Answer

a. Productive efficiency
b. Productive e

Question 19

Figure 9-5
   
Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 9-5.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 20

Figure 9-13
  
-Refer to Figure 9-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business,in the long-run equilibrium

Accepted Answer

A) it will reduce its output to Q₀ and face a price of P₀. 
B) it will continue to produce Q₁ but faces the higher price of P₂. 
C) it will expand its output to Q₂ and face a price of P₂. 
D) it will expand its output to Q₃ and face a price of P₁. 
A) it will reduce its output to Q₀ and face a price of P₀. 
B) it will continue to produce Q₁ but faces the higher price of P₂. 
C) it will expand its output to Q₂ and face a price of P₂. 
D) it will expand its output to Q₃ and face a price of P₁.

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

What is the difference between "shutting down temporarily" and "exiting the industry"?

The minimum point on the average variable cost curve is called

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

What is always true at the quantity where a firm's average total cost equals average revenue?

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market

For a perfectly competitive firm,at profit maximization

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?

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal,as more farmers choose to produce and sell organic produce at farmers' markets,what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost. a.What is this efficiency criterion called? b.How does it benefit consumers?

Figure 9-13 -Refer to Figure 9-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business,in the long-run equilibrium

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

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Exam 9: Firms in Perfectly Competitive Markets

If the market price is $25 in a perfectly competitive market,the marginal revenue from selling the fifth unit is

What is the difference between "shutting down temporarily" and "exiting the industry"?

The minimum point on the average variable cost curve is called

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

In the short run,a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

What is always true at the quantity where a firm's average total cost equals average revenue?

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

Apple introduced its iPhone 3G in July 2008 and within a month sales had topped 3 million units.By April 2009,more than 25,000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market

For a perfectly competitive firm,at profit maximization

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?

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal,as more farmers choose to produce and sell organic produce at farmers' markets,what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost. a.What is this efficiency criterion called? b.How does it benefit consumers?

Figure 9-13 -Refer to Figure 9-13.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.If the firm represented in the diagram continues to stay in business,in the long-run equilibrium

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters