Question 1

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

Accepted Answer

A) True 
 B)False

Question 2

Figure 12-13
  
-Refer to Figure 12-13.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.

Question 3

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why.
a.Restaurants
b.Corn
c.College education
d.Local radio and television

Accepted Answer

a.Restaurants are not perfectly competit

Question 4

A perfectly competitive firm's marginal revenue curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as farmers find it less profitable to produce and sell cage-free eggs 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 7

In a perfectly competitive industry, in the long-run equilibrium,

Accepted Answer

A) the typical firm is producing at the output where its long-run average total cost is not minimized. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximizing its revenue. 
A) the typical firm is producing at the output where its long-run average total cost is not minimized. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximizing its revenue.

Question 8

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A) Its economic profit will be zero. 
B) It will minimize average total cost. 
C) It will charge a price equal to marginal cost. 
D) Marginal cost will be minimized. 
A) Its economic profit will be zero. 
B) It will minimize average total cost. 
C) It will charge a price equal to marginal cost. 
D) Marginal cost will be minimized.

Question 9

A firm will break even when

Accepted Answer

A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC. A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC.

Question 10

Figure 12-17
   
The graphs in Figure 12-17 represent the perfectly competitive market demand and supply curves for the apple industry and demand and cost curves for a typical firm in the industry.
-Refer to Figure 12-17.The graphs depict a short-run equilibrium.How will this differ from the long-run equilibrium? (Assume this is a constant-cost industry.)

Accepted Answer

A) Fewer firms will be in the market in the long run than in the short run. 
B) The price will be higher in the long run than in the short run. 
C) The market supply curve will be further to the left in the long run than in the short run. 
D) The firm's profit will be lower in the long run than in the short run. 
A) Fewer firms will be in the market in the long run than in the short run. 
B) The price will be higher in the long run than in the short run. 
C) The market supply curve will be further to the left in the long run than in the short run. 
D) The firm's profit will be lower in the long run than in the short run.

Question 11

Hogrocket, which developed the Tiny Invaders game for the iPhone, 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 12

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Accepted Answer

A) True 
 B)False

Question 13

Figure 12-2
  
-Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Accepted Answer

A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q₂. 
C) It is equal to the vertical distance g to Q₂. 
D) It is equal to the vertical distance c to g multiplied by Q₂ units. 
A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q₂. 
C) It is equal to the vertical distance g to Q₂. 
D) It is equal to the vertical distance c to g multiplied by Q₂ units.

Question 14

Figure 12-9
   
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9.At price P₃, 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 15

If a typical firm in a perfectly competitive industry is incurring losses, then

Accepted Answer

A) all firms will continue to lose money. 
B) some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms. 
C) some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms. 
D) some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms. 
A) all firms will continue to lose money. 
B) some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms. 
C) some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms. 
D) some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms.

Question 16

Figure 12-20
  
-Refer to Figure 12-20.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 17

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

Accepted Answer

A) True 
 B)False

Question 18

Figure 12-2
  
-Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?

Accepted Answer

A) Its profit increases. 
B) It incurs 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 incurs 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 19

Both individual buyers and sellers in perfect competition

Accepted Answer

A) can influence the market price by their own individual actions. 
B) can influence the market price by joining with a few of their competitors. 
C) have to take the market price as a given. 
D) have the market price dictated to them by government. 
A) can influence the market price by their own individual actions. 
B) can influence the market price by joining with a few of their competitors. 
C) have to take the market price as a given. 
D) have the market price dictated to them by government.

Question 20

Writing in the New York Times on the technology boom of the late 1990s, Michael Lewis argues, "The sad truth, for investors, seems to be that most of the benefits of new technologies are passed right through to consumers free of charge." What does Lewis means by the benefits of new technology being "passed right through to consumers free of charge"?

Accepted Answer

A) Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B) In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge." 
C) In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge." 
D) In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge." 
A) Firms in perfect competition are price takers. Since they cannot influence price, they cannot dictate who benefits from new technologies, even if the benefits of new technology are being "passed right through to consumers free of charge." 
B) In perfect competition, price equals marginal cost of production. In this sense, consumers receive the new technology "free of charge." 
C) In the long run, price equals the lowest possible average cost of production. In this sense, consumers receive the new technology "free of charge." 
D) In perfect competition, consumers place a value on the good equal to its marginal cost of production and since they are willing to pay the marginal valuation of the good, they are essentially receiving the new technology "free of charge."

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

Figure 12-13 -Refer to Figure 12-13.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

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. a.Restaurants b.Corn c.College education d.Local radio and television

A perfectly competitive firm's marginal revenue curve is downward sloping.

Which of the following statements is true?

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

In a perfectly competitive industry, in the long-run equilibrium,

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

A firm will break even when

Hogrocket, which developed the Tiny Invaders game for the iPhone, found that to maintain sales in a profitable competitive market, the price of a product

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Figure 12-2 -Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₃, the firm would

If a typical firm in a perfectly competitive industry is incurring losses, then

Figure 12-20 -Refer to Figure 12-20.If the market price is P₁, what is the allocatively efficient output level?

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

Figure 12-2 -Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?

Both individual buyers and sellers in perfect competition

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

In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

Figure 12-13 -Refer to Figure 12-13.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

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why. a.Restaurants b.Corn c.College education d.Local radio and television

A perfectly competitive firm's marginal revenue curve is downward sloping.

Which of the following statements is true?

Assume that the market for cage-free eggs is perfectly competitive.All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

In a perfectly competitive industry, in the long-run equilibrium,

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

A firm will break even when

Hogrocket, which developed the Tiny Invaders game for the iPhone, found that to maintain sales in a profitable competitive market, the price of a product

In the short run, if price falls below a firm's minimum average total cost, then the firm should shut down.

Figure 12-2 -Refer to Figure 12-2.What is the amount of profit if the firm produces Q₂ units?

Figure 12-9 Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 12-9.At price P₃, the firm would

If a typical firm in a perfectly competitive industry is incurring losses, then

Figure 12-20 -Refer to Figure 12-20.If the market price is P₁, what is the allocatively efficient output level?

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

Figure 12-2 -Refer to Figure 12-2.What happens if the firm produces more than Q₄ units?

Both individual buyers and sellers in perfect competition

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