Question 1

In the short run,a firm that is operating at a loss has two options.These options are

Accepted Answer

A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant. 
A) to reduce output or reduce its variable costs. 
B) to go out of business or declare bankruptcy. 
C) to shut down temporarily or continue to produce. 
D) to adopt new technology or change the size of its physical plant.

Question 2

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Market supply is found by

Accepted Answer

A) vertically summing the relevant part of each individual producer's marginal cost curve. 
B) horizontally summing the relevant part of each individual producer's marginal cost curve. 
C) vertically summing each individual producer's average total cost curve. 
D) horizontally summing each individual producer's average total cost curve. 
A) vertically summing the relevant part of each individual producer's marginal cost curve. 
B) horizontally summing the relevant part of each individual producer's marginal cost curve. 
C) vertically summing each individual producer's average total cost curve. 
D) horizontally summing each individual producer's average total cost curve.

Question 4

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

Allocative efficiency refers to a state

Question 5

For a firm in a perfectly competitive market,price is

Accepted Answer

A) equal to both average revenue and marginal revenue. 
B) equal to average revenue but greater than marginal revenue. 
C) greater than marginal revenue but less than average revenue. 
D) less than both average revenue and marginal revenue. 
A) equal to both average revenue and marginal revenue. 
B) equal to average revenue but greater than marginal revenue. 
C) greater than marginal revenue but less than average revenue. 
D) less than both average revenue and marginal revenue.

Question 6

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximize its profit?

Accepted Answer

A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more 
A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more

Question 7

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost. 
A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost.

Question 8

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

Accepted Answer

A company would continue to op

Question 9

Firms that are price takers

Accepted Answer

A) must lower their prices to increase sales. 
B) are able to sell a fixed quantity of output at the market price. 
C) can raise their prices as a result of a successful advertising campaign. 
D) are able to sell all their output at the market price. 
A) must lower their prices to increase sales. 
B) are able to sell a fixed quantity of output at the market price. 
C) can raise their prices as a result of a successful advertising campaign. 
D) are able to sell all their output at the market price.

Question 10

Figure 9-9
   
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would produce

Accepted Answer

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

Question 11

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

Accepted Answer

A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic. 
A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic.

Question 12

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Question 13

Under what conditions should a competitive firm shut down in the short run?

Accepted Answer

When market price is below ave

Question 14

In the mid-1990s,cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost.What is the likely explanation for this?

Accepted Answer

A) Continuing to operate resulted in smaller losses than would have been incurred by shutting down. 
B) The ranchers were hoping to receive government subsidies. 
C) The exit costs were too high. 
D) Cattle is an important source of protein and its production is essential for the United States. 
A) Continuing to operate resulted in smaller losses than would have been incurred by shutting down. 
B) The ranchers were hoping to receive government subsidies. 
C) The exit costs were too high. 
D) Cattle is an important source of protein and its production is essential for the United States.

Question 15

Figure 9-9
   
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.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 16

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $\begin{array}{|c|c|}
\hline\text { Output per } & \
\text { Day }& \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$ 
Suppose the current equilibrium price in the teapot market is $15.To maximize profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).

Accepted Answer

Veronica will produce 5 teapot

Question 17

Figure 9-20
  
-Refer to Figure 9-20.If the market price is P₁,what is the allocatively efficient output level?

Accepted Answer

A) Q₀ 
B) Q₁ 
C) Q₂ 
D) There is no allocatively efficient output level because the firm is making a loss. 
A) Q₀ 
B) Q₁ 
C) Q₂ 
D) There is no allocatively efficient output level because the firm is making a loss.

Question 18

Figure 9-19
  
-Refer to Figure 9-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 9-19 to answer the following questions.Assume the market price is $3 per pound.
a.What is the lowest price at which the coffee grower will supply output in the short run?
b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).
c.What is the firm's profit-maximizing output?
d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss.
e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Accepted Answer

a. $1.50 per pound.This represents the l

Question 19

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market

Accepted Answer

A) the demand curve will shift to the left and the equilibrium price will decrease. 
B) the supply curve will shift to the left and the equilibrium price will increase. 
C) the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D) the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. 
A) the demand curve will shift to the left and the equilibrium price will decrease. 
B) the supply curve will shift to the left and the equilibrium price will increase. 
C) the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. 
D) the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase.

Question 20

Figure 9-9
   
Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.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.

In the short run,a firm that is operating at a loss has two options.These options are

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Market supply is found by

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

For a firm in a perfectly competitive market,price is

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximize its profit?

A perfectly competitive firm's short-run supply curve is

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

Firms that are price takers

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would produce

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Under what conditions should a competitive firm shut down in the short run?

In the mid-1990s,cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost.What is the likely explanation for this?

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would

Figure 9-20 -Refer to Figure 9-20.If the market price is P₁,what is the allocatively efficient output level?

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₄,the firm would produce

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

In the short run,a firm that is operating at a loss has two options.These options are

A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000.If the prevailing market price is $48,the number of firms and the industry's output will decrease in the long run.

Market supply is found by

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

For a firm in a perfectly competitive market,price is

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold,what should the farm do to maximize its profit?

A perfectly competitive firm's short-run supply curve is

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis,explain when the company would shut down.

Firms that are price takers

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would produce

If a perfectly competitive firm raises the price it charges to consumers,which of the following is the most likely outcome?

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Under what conditions should a competitive firm shut down in the short run?

In the mid-1990s,cattle ranchers in the United States kept raising cattle even though prices were at a ten-year low and below average total cost.What is the likely explanation for this?

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would

Figure 9-20 -Refer to Figure 9-20.If the market price is P₁,what is the allocatively efficient output level?

Assume the market for organically-grown produce is perfectly competitive.All else equal,as farmers find it less profitable to produce and sell organic produce in this market

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₄,the firm would produce

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