Question 1

Which of the following statements is true?

Accepted Answer

A) A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B) When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C) A long-run competitive equilibrium outcome is not economically efficient. 
D) When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even. 
A) A long-run competitive equilibrium can only be achieved in constant-cost industries. 
B) When an industry achieves a long-run competitive equilibrium, industry output will not change in the future. 
C) A long-run competitive equilibrium outcome is not economically efficient. 
D) When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.

Question 2

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Accepted Answer

When firms earn no economic profit but e

Question 3

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Accepted Answer

One way is using total revenue and total

Question 4

Figure 9-6
   
Figure 9-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 9-6.If Jason maximizes his profit he will produce the output rate indicated by point ________ and his average profit will equal ________.

Accepted Answer

A) d; $3 minus ATC at point d 
B) b; $3 minus ATC at point b 
C) e; $3 minus ATC at point e 
D) a; $3 
A) d; $3 minus ATC at point d 
B) b; $3 minus ATC at point b 
C) e; $3 minus ATC at point e 
D) a; $3

Question 5

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.The firm will not produce in the short run if the output price falls below

Accepted Answer

A) $8. 
B) $4. 
C) $3.20. 
D) $2.80. 
A) $8. 
B) $4. 
C) $3.20. 
D) $2.80.

Question 6

Article Summary
According to the Department of Agriculture, net farm income will grow to a record high of $120.6 billion in 2013, up from the previous high mark in 2011 and after adjusting for inflation, its second highest level since 1973.Net cash income, however, is expected to fall by 10 percent due to unsold inventories.Exports of chickens and milk are expected to rise by 3 percent and 17 percent, respectively.
Source: Ros Krasny, "Farm income poised for record 2013: USDA," Reuters, August 27, 2013.
-Refer to the Article Summary.Assume that after the record year for U.S.farm income in 2013,farmers are expected to break even in 2014.This means that at the quantity being produced in 2014,

Accepted Answer

A) MC =AVC. 
B) MR =MC. 
C) MR =ATC. 
D) AVC =ATC. 
A) MC =AVC. 
B) MR =MC. 
C) MR =ATC. 
D) AVC =ATC.

Question 7

A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

Accepted Answer

A) average total cost equals marginal revenue. 
B) marginal revenue equals marginal profit. 
C) marginal revenue equals marginal cost. 
D) marginal revenue equals average revenue. 
A) average total cost equals marginal revenue. 
B) marginal revenue equals marginal profit. 
C) marginal revenue equals marginal cost. 
D) marginal revenue equals average revenue.

Question 8

What is allocative efficiency?

Accepted Answer

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

Question 9

The price a perfectly competitive firm receives for its output

Accepted Answer

A) is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B) is determined by the interaction of all sellers and all buyers in the firm's market. 
C) will not change in response to changes in market demand and supply because the firm is a price taker. 
D) will be lowered by the firm in order to sell more output. 
A) is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B) is determined by the interaction of all sellers and all buyers in the firm's market. 
C) will not change in response to changes in market demand and supply because the firm is a price taker. 
D) will be lowered by the firm in order to sell more output.

Question 10

Table 9-3
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \text { Total Cost } & \begin{array} { c } 
\text { Average } \
\text { Total Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 0 & \$ 10.00 & \cdots & \cdots \
\hline 1 & 15.00 & \$ 15.00 & \$ 5.00 \
\hline 2 & 17.50 & 8.75 & 2.50 \
\hline 3 & 22.50 & 7.50 & 5.00 \
\hline 4 & 30.00 & 7.50 & 7.50 \
\hline 5 & 40.00 & 8.00 & 10.00 \
\hline 6 & 52.50 & 8.75 & 12.50 \
\hline 7 & 67.50 & 9.64 & 15.00 \
\hline 8 & 85.00 & 10.63 & 17.50 \
\hline 9 & 105.00 & 11.67 & 20.00 \
\hline
\end{array}$$ 
Arnie sells basketballs in a perfectly competitive market.Table 9-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 9-3.What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A) Q = 1; profit = -$10. 
B) Q = 3; profit = -$7.50 
C) Q = 0; profit = -$10.00 
D) Price and profit cannot be determined from the information given. 
A) Q = 1; profit = -$10. 
B) Q = 3; profit = -$7.50 
C) Q = 0; profit = -$10.00 
D) Price and profit cannot be determined from the information given.

Question 11

Perfectly competitive industries tend to produce low-priced,low-technology products.

Accepted Answer

A) True 
 B)False

Question 12

Table 9-4
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Average } \
\text { Fixed Cost }
\end{array} & \begin{array} { c } 
\text { Average } \
\text { Variable Cost }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Cost }
\end{array} \
\hline 20 & \$ 40 & \$ 18 & \$ 18 \
\hline 40 & 20 & 14 & 10 \
\hline 60 & 13.1 & 16 & 20 \
\hline 80 & 10 & 22 & 40 \
\hline 100 & 8 & 30 & 62 \
\hline 120 & 6.61 & 40 & 90 \
\hline
\end{array}$$ 
Table 9-4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 9-4.If the market price is $45,the firm

Accepted Answer

A) earn a profit of $3,600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1,040. 
A) earn a profit of $3,600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1,040.

Question 13

In a graph that illustrates a perfectly competitive firm,marginal revenue is

Accepted Answer

A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve. 
A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve.

Question 14

If in the long run a firm makes zero profit,it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 15

Figure 9-1
  
-Refer to Figure 9-1.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 16

An industry's long-run supply curve shows

Accepted Answer

A) the relationship in the long run between market price and quantity supplied. 
B) how the government determines the price of the product. 
C) how average productivity is changing. 
D) greater than normal profit. 
A) the relationship in the long run between market price and quantity supplied. 
B) how the government determines the price of the product. 
C) how average productivity is changing. 
D) greater than normal profit.

Question 17

Figure 9-11
  
-Refer to Figure 9-11.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

Accepted Answer

A) $5 
B) $14 
C) $15 
D) $20 
A) $5 
B) $14 
C) $15 
D) $20

Question 18

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Accepted Answer

A) the output where marginal revenue equals marginal cost. 
B) any positive output the entrepreneur decides upon because all of it can be sold. 
C) nothing at all; the firm shuts down. 
D) the output where average total cost equals price. 
A) the output where marginal revenue equals marginal cost. 
B) any positive output the entrepreneur decides upon because all of it can be sold. 
C) nothing at all; the firm shuts down. 
D) the output where average total cost equals price.

Question 19

Profit is the difference between

Accepted Answer

A) marginal revenue and marginal cost. 
B) total revenue and variable cost. 
C) total revenue and total explicit cost. 
D) total revenue and total cost. 
A) marginal revenue and marginal cost. 
B) total revenue and variable cost. 
C) total revenue and total explicit cost. 
D) total revenue and total cost.

Question 20

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

Accepted Answer

A) The price remains constant at $48. 
B) The price falls below $48. 
C) The price rises above $48. 
D)  There is insufficient information to answer the question. 
A) The price remains constant at $48. 
B) The price falls below $48. 
C) The price rises above $48. 
D)  There is insufficient information to answer the question.

Which of the following statements is true?

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Figure 9-6 Figure 9-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples. -Refer to Figure 9-6.If Jason maximizes his profit he will produce the output rate indicated by point and his average profit will equal .

A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

What is allocative efficiency?

The price a perfectly competitive firm receives for its output

Perfectly competitive industries tend to produce low-priced,low-technology products.

In a graph that illustrates a perfectly competitive firm,marginal revenue is

If in the long run a firm makes zero profit,it should exit the industry.

Figure 9-1 -Refer to Figure 9-1.If the firm is producing 200 units

An industry's long-run supply curve shows

Figure 9-11 -Refer to Figure 9-11.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Profit is the difference between

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

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

Exam 9: Firms in Perfectly Competitive Markets

Which of the following statements is true?

If firms do not earn economic profits in a competitive equilibrium,why would the firms choose to stay in business?

Explain two different ways to determine the profit-maximizing level of output for a firm in a perfectly competitive market.

Figure 9-6 Figure 9-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples. -Refer to Figure 9-6.If Jason maximizes his profit he will produce the output rate indicated by point ________ and his average profit will equal ________.

A perfectly competitive firm will maximize its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

What is allocative efficiency?

The price a perfectly competitive firm receives for its output

Perfectly competitive industries tend to produce low-priced,low-technology products.

In a graph that illustrates a perfectly competitive firm,marginal revenue is

If in the long run a firm makes zero profit,it should exit the industry.

Figure 9-1 -Refer to Figure 9-1.If the firm is producing 200 units

An industry's long-run supply curve shows

Figure 9-11 -Refer to Figure 9-11.If this is a constant-cost industry,what is the market price in the long-run equilibrium?

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Profit is the difference between

A perfectly competitive wheat farmer in a constant-cost industry produces 1,000 bushels of wheat at a total cost of $50,000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

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

Figure 9-6 Figure 9-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples. -Refer to Figure 9-6.If Jason maximizes his profit he will produce the output rate indicated by point and his average profit will equal .