Question 1

What is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?

Accepted Answer

A) Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B) The market price is equal to both average revenue and marginal revenue. 
C) Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D) As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price. 
A) Average revenue is equal to the market price; average revenue is greater than marginal revenue. 
B) The market price is equal to both average revenue and marginal revenue. 
C) Average revenue is equal to marginal revenue; average revenue is greater than the market price. 
D) As a firm lowers the market price to sell more output, marginal revenue and average revenue will be less than the market price.

Question 2

If the market price is $40, the average revenue of selling five units is

Accepted Answer

A) $8. 
B) $20. 
C) $40. 
D) $200. 
A) $8. 
B) $20. 
C) $40. 
D) $200.

Question 3

Figure 12-5
   
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Accepted Answer

A) $5,400 
B) $6,750 
C) $8,100 
D) $16,200 
A) $5,400 
B) $6,750 
C) $8,100 
D) $16,200

Question 4

Figure 12-12
  
-Refer to Figure 12-12.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 5

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these 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 6

Figure 12-4
   
Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 12-4.If the market price is $30, the firm's profit-maximizing output level is

Accepted Answer

A) 0. 
B) 130. 
C) 180. 
D) 240. 
A) 0. 
B) 130. 
C) 180. 
D) 240.

Question 7

Figure 12-1
  
-Refer to Figure 12-1.If the firm is producing 200 units,

Accepted Answer

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

Question 8

In the long run, perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long-run they will not earn any profit?

Accepted Answer

Even though in the long run firms earn z

Question 9

Figure 12-1
  
-Refer to Figure 12-1.If the firm is producing 500 units, what is the amount of its profit or loss?

Accepted Answer

A) profit 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) profit 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 10

Perfect competition is characterized by all of the following except

Accepted Answer

A) heavy advertising by individual sellers. 
B) homogeneous products. 
C) sellers are price takers. 
D) a horizontal demand curve for individual sellers. 
A) heavy advertising by individual sellers. 
B) homogeneous products. 
C) sellers are price takers. 
D) a horizontal demand curve for individual sellers.

Question 11

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.

Question 12

Table 12-3
   
Arnie sells basketballs in a perfectly competitive market. Table 12-3 summarizes Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 12-3.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 13

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph, use a supply and demand graph to illustrate the positive technological change.On the second graph, use demand, ATC, MC, and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

Accepted Answer

On the first graph, supply shifts to the

Question 14

Figure 12-16
  
-Refer to Figure 12-16.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 15

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 16

Figure 12-11
  
-Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium

Accepted Answer

A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant. 
A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant.

Question 17

In perfect competition,

Accepted Answer

A) the market demand curve and the individual's demand curve are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. 
A) the market demand curve and the individual's demand curve are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

Question 18

Which of the following is not a characteristic of a perfectly competitive market structure?

Accepted Answer

A) There are a very large number of firms that are small compared to the market. 
B) All firms sell identical products. 
C) There are no restrictions to entry by new firms. 
D) There are restrictions on exit of firms. 
A) There are a very large number of firms that are small compared to the market. 
B) All firms sell identical products. 
C) There are no restrictions to entry by new firms. 
D) There are restrictions on exit of firms.

Question 19

A very large number of small sellers who sell identical products imply

Accepted Answer

A) a multitude of vastly different selling prices. 
B) a downward sloping demand curve for each seller's product. 
C) the inability of one seller to influence the price. 
D) chaos in the market. 
A) a multitude of vastly different selling prices. 
B) a downward sloping demand curve for each seller's product. 
C) the inability of one seller to influence the price. 
D) chaos in the market.

Question 20

Figure 12-1
  
-Refer to Figure 12-1.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.

What is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?

If the market price is $40, the average revenue of selling five units is

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Figure 12-12 -Refer to Figure 12-12.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?

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30, the firm's profit-maximizing output level is

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 200 units,

In the long run, perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long-run they will not earn any profit?

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units, what is the amount of its profit or loss?

Perfect competition is characterized by all of the following except

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?

The price a perfectly competitive firm receives for its output

Figure 12-11 -Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium

In perfect competition,

Which of the following is not a characteristic of a perfectly competitive market structure?

A very large number of small sellers who sell identical products imply

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units, what is the amount of its profit or loss?

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 12: Firms in Perfectly Competitive Markets

What is the relationship among the following variables for a perfectly competitive firm: the market price, average revenue and marginal revenue?

If the market price is $40, the average revenue of selling five units is

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the amount of the firm's profit?

Figure 12-12 -Refer to Figure 12-12.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?

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as more farmers choose to produce and sell cage-free eggs, what is likely to happen to the equilibrium price of the eggs and profits of these farmers in the long run?

Figure 12-4 Figure 12-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 12-4.If the market price is $30, the firm's profit-maximizing output level is

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 200 units,

In the long run, perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long-run they will not earn any profit?

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 500 units, what is the amount of its profit or loss?

Perfect competition is characterized by all of the following except

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?

The price a perfectly competitive firm receives for its output

Figure 12-11 -Refer to Figure 12-11.Suppose the prevailing price is $20 and the firm is currently producing 1,350 units.In the long-run equilibrium

In perfect competition,

Which of the following is not a characteristic of a perfectly competitive market structure?

A very large number of small sellers who sell identical products imply

Figure 12-1 -Refer to Figure 12-1.If the firm is producing 700 units, what is the amount of its profit or loss?

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters