Question 1

If the market price is $25, the average revenue of selling five units is

Accepted Answer

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

Question 2

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

Accepted Answer

A) P - ATC 
B) (P - AT
C) × Q 
C) (P × Q)- TC 
D) P - TC 
A) P - ATC 
B) (P - AT
C) × Q 
C) (P × Q)- TC 
D) P - TC

Question 3

The supply curve of a perfectly competitive firm in the short run is

Accepted Answer

A) the firm's average variable cost curve. 
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve. 
A) the firm's average variable cost curve. 
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve.

Question 4

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.What is the immediate result of this event?

Accepted Answer

A) The market price falls and the typical firm suffers an economic loss. 
B) The market supply increases to offset the fall in demand. 
C) The typical firm's average total cost curve shifts downward. 
D) The typical firm's marginal cost curve shifts to the left. 
A) The market price falls and the typical firm suffers an economic loss. 
B) The market supply increases to offset the fall in demand. 
C) The typical firm's average total cost curve shifts downward. 
D) The typical firm's marginal cost curve shifts to the left.

Question 5

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 6

If a firm shuts down, it

Accepted Answer

A) will suffer a loss equal to its fixed costs. 
B) will produce nothing but must pay its variable costs. 
C) will produce nothing but must pay its fixed and variable costs. 
D) will earn enough revenue to cover its variable costs but not all of its fixed costs. 
A) will suffer a loss equal to its fixed costs. 
B) will produce nothing but must pay its variable costs. 
C) will produce nothing but must pay its fixed and variable costs. 
D) will earn enough revenue to cover its variable costs but not all of its fixed costs.

Question 7

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

A) average total cost equals average revenue. 
B) average fixed cost is minimized. 
C) total revenue is equal to total cost. 
D) total profit is maximized. 
A) average total cost equals average revenue. 
B) average fixed cost is minimized. 
C) total revenue is equal to total cost. 
D) total profit is maximized.

Question 8

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

Accepted Answer

A) The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs. 
B) Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C) As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market. 
A) The U.S. Department of Agriculture has established standards for the labeling of cage-free eggs. 
B) Sales of cage-free eggs have increased at a rate of 20 percent per year. 
C) As more farmers began selling cage-free eggs, the increase in supply has driven down prices to the point where they just cover the cost of production. 
D) The profits earned by farmers who sell cage-free eggs have continued to grow, despite the increasing number of farmers entering this market.

Question 9

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 12-5 shows the firm's cost schedule.
Table 12-5
   
Use the table to answer the following questions.
a. Complete Table 12-5 by filling in the blank cells.
b. Werner is selling in a perfectly competitive market at a price of $40. What is the profit-maximizing or loss-minimizing output?
c. Calculate the firm's profit or loss.
d. Should the firm continue to produce in the short run? Explain.
e. If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase, decrease, or remain unchanged compared to your answer in b.
f. Suppose fixed cost remains at $76. If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output?
g. Calculate the profit or loss. Should the firm continue to produce in the short run? Explain your answer.
h. Suppose the fixed cost remains at $76. What price corresponds to the shut-down point?
i. Suppose the fixed cost remains at $76. What price corresponds to the break-even point?

Accepted Answer

a.@#IMG-DLM& 
b. Quantity = 8 units.
c. Profit = $

Question 10

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 11

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 12

Table 12-4
   
Table 12-4 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 12-4.If the market price is $45 the firm will produce

Accepted Answer

A) 60 units. 
B) 80 units. 
C) 100 units. 
D) 120 units. 
A) 60 units. 
B) 80 units. 
C) 100 units. 
D) 120 units.

Question 13

The market demand curve in a perfectly competitive market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 14

Figure 12-1
  
-Refer to Figure 12-1.If the firm is charging a price of $12 per unit,

Accepted Answer

A) it breaks even. 
B) it is making a profit. 
C) it is selling 700 units. 
D) it is not selling any output. 
A) it breaks even. 
B) it is making a profit. 
C) it is selling 700 units. 
D) it is not selling any output.

Question 15

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Accepted Answer

A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors. 
A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors.

Question 16

A constant-cost, perfectly competitive market is in long-run equilibrium.At present, there are 1,000 firms each producing 400 units of output.The price of the good is $60.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64.In the new long-run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose?

Accepted Answer

A) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B) The average total cost will be lower than it was before the price increase because of economies of scale. 
C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D) The average total cost will be the lower than it was before the price increase as output increases. 
A) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices. 
B) The average total cost will be lower than it was before the price increase because of economies of scale. 
C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. 
D) The average total cost will be the lower than it was before the price increase as output increases.

Question 17

If a typical firm in a perfectly competitive industry is earning profits, then

Accepted Answer

A) all firms will continue to earn profits. 
B) new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase. 
C) new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease. 
D) the number of firms in the industry will remain constant in the long run. 
A) all firms will continue to earn profits. 
B) new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase. 
C) new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease. 
D) the number of firms in the industry will remain constant in the long run.

Question 18

If a perfectly competitive firm's price is above its average total cost, the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even. 
A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even.

Question 19

Figure 12-15
  
-Refer to Figure 12-15.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in 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 20

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.

If the market price is $25, the average revenue of selling five units is

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

The supply curve of a perfectly competitive firm in the short run is

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.What is the immediate result of this event?

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

If a firm shuts down, it

Producing where marginal revenue equals marginal cost is equivalent to producing where

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

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?

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Table 12-4 Table 12-4 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 12-4.If the market price is $45 the firm will produce

The market demand curve in a perfectly competitive market is downward sloping.

Figure 12-1 -Refer to Figure 12-1.If the firm is charging a price of $12 per unit,

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

If a typical firm in a perfectly competitive industry is earning profits, then

If a perfectly competitive firm's price is above its average total cost, the firm

Figure 12-15 -Refer to Figure 12-15.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

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,

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

If the market price is $25, the average revenue of selling five units is

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

The supply curve of a perfectly competitive firm in the short run is

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.What is the immediate result of this event?

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

If a firm shuts down, it

Producing where marginal revenue equals marginal cost is equivalent to producing where

Which of the following arguments could be made as evidence that the market for cage-free eggs is perfectly competitive?

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?

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Table 12-4 Table 12-4 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 12-4.If the market price is $45 the firm will produce

The market demand curve in a perfectly competitive market is downward sloping.

Figure 12-1 -Refer to Figure 12-1.If the firm is charging a price of $12 per unit,

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

If a typical firm in a perfectly competitive industry is earning profits, then

If a perfectly competitive firm's price is above its average total cost, the firm

Figure 12-15 -Refer to Figure 12-15.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

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,

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