Question 1

A perfectly competitive firm's supply curve includes its marginal cost curve at all prices above minimum

Accepted Answer

A) average total cost. 
B) average fixed cost. 
C) total cost. 
D) average variable cost. 
E) total variable cost. 
A) average total cost. 
B) average fixed cost. 
C) total cost. 
D) average variable cost. 
E) total variable cost. D

Question 2

Use the table below to answer the following questions.
Table 12.1.1
  
-Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm. If the quantity sold by the firm rises from 5 to 6, marginal revenue is

Accepted Answer

A) $15. 
B) $30. 
C) $75. 
D) $90. 
E) $105. 
A) $15. 
B) $30. 
C) $75. 
D) $90. 
E) $105. A

Question 3

If price falls below minimum average variable cost, the best a firm can do is

Accepted Answer

A) increase production and incur a loss equal to total variable cost. 
B) increase production and incur a loss equal to total fixed cost. 
C) stop production and incur a loss equal to total fixed cost. 
D) stop production and incur a loss equal to total variable cost. 
E) stay at the same production level and incur a loss equal to the difference between total cost and total revenue. 
A) increase production and incur a loss equal to total variable cost. 
B) increase production and incur a loss equal to total fixed cost. 
C) stop production and incur a loss equal to total fixed cost. 
D) stop production and incur a loss equal to total variable cost. 
E) stay at the same production level and incur a loss equal to the difference between total cost and total revenue. C

Question 4

Use the information below to answer the following questions.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
-Refer to Fact 12.1.1. The price of gasoline is determined by ________. The marginal revenue from gasoline equals ________.

Accepted Answer

A) the quantity of gasoline that Rutter's and Sheetz sells; average variable cost 
B) the number of tourists who drive by Rutter's and Sheetz; average fixed cost 
C) the other goods and services that Rutter's and Sheetz sell; average total cost 
D) market demand and market supply; price 
E) the price elasticity of demand of gasoline; the change in total revenue that occurs when the price of a litre of gasoline rises by an incremental amount 
A) the quantity of gasoline that Rutter's and Sheetz sells; average variable cost 
B) the number of tourists who drive by Rutter's and Sheetz; average fixed cost 
C) the other goods and services that Rutter's and Sheetz sell; average total cost 
D) market demand and market supply; price 
E) the price elasticity of demand of gasoline; the change in total revenue that occurs when the price of a litre of gasoline rises by an incremental amount

Question 5

Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms, and there is free entry in the fortune cookie market. Buyers and sellers are well informed about prices. Lin's fortune cookies operates in a ________ market.

Accepted Answer

A) challenging 
B) monopolistic 
C) perfectly competitive 
D) noncompetitive 
E) perfectly competent 
A) challenging 
B) monopolistic 
C) perfectly competitive 
D) noncompetitive 
E) perfectly competent

Question 6

If a perfectly competitive firm's marginal revenue is greater than its marginal cost, the firm

Accepted Answer

A) cannot increase its economic profit. 
B) must be making an economic profit. 
C) will decrease its output to increase economic profit. 
D) will increase its output to increase economic profit. 
E) will lower the price. 
A) cannot increase its economic profit. 
B) must be making an economic profit. 
C) will decrease its output to increase economic profit. 
D) will increase its output to increase economic profit. 
E) will lower the price.

Question 7

A perfectly competitive firm is producing at the point at which marginal cost equals marginal revenue. If the firm increases production, total revenue ________ and economic profit ________.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
E) increases; remains unchanged 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
E) increases; remains unchanged

Question 8

For perfect competition to arise, it is necessary that market demand be

Accepted Answer

A) inelastic. 
B) elastic. 
C) perfectly elastic. 
D) large relative to the minimum efficient scale of a single firm. 
E) small relative to the minimum efficient scale of a single firm. 
A) inelastic. 
B) elastic. 
C) perfectly elastic. 
D) large relative to the minimum efficient scale of a single firm. 
E) small relative to the minimum efficient scale of a single firm.

Question 9

Use the table below to answer the following question.
Table 12.2.4

-Refer to Table 12.2.4. The market is perfectly competitive and there are 1,000 firms that produce paper. The top table sets out the market demand schedule for paper.
Each producer of paper has the costs shown in the bottom table when it uses its least-cost plant size.
The market price is ________ a box and the market output is ________ boxes. The output produced by each firm is ________ boxes. Each firm ________.

Accepted Answer

A) $7.00; 250,000; 250; incurs an economic loss of $1,000 a week 
B) $8.40; 350,000; 350; makes zero economic profit 
C) $7.65; 300,000; 300; incurs an economic loss of $834 a week 
D) $8.40; 350,000; 350; incurs an economic loss of $581 a week 
E) $7.65; 350,000; 300; makes zero economic profit 
A) $7.00; 250,000; 250; incurs an economic loss of $1,000 a week 
B) $8.40; 350,000; 350; makes zero economic profit 
C) $7.65; 300,000; 300; incurs an economic loss of $834 a week 
D) $8.40; 350,000; 350; incurs an economic loss of $581 a week 
E) $7.65; 350,000; 300; makes zero economic profit

Question 10

A perfectly competitive market is characterized by

Accepted Answer

A) firms that are price setters. 
B) firms that each face a downward-sloping demand curve. 
C) firms that each sell a unique good or service. 
D) buyers who are unaware of the price charged by each firm. 
E) no restrictions on entry into the market. 
A) firms that are price setters. 
B) firms that each face a downward-sloping demand curve. 
C) firms that each sell a unique good or service. 
D) buyers who are unaware of the price charged by each firm. 
E) no restrictions on entry into the market.

Question 11

Consider a perfectly competitive market. In the short run, if demand increases due to a technological advance, the equilibrium price

Accepted Answer

A) remains constant and the equilibrium quantity increases. 
B) remains constant and the equilibrium quantity decreases. 
C) rises and the equilibrium quantity increases. 
D) falls and the equilibrium quantity decreases. 
E) rises and the equilibrium quantity remains the same. 
A) remains constant and the equilibrium quantity increases. 
B) remains constant and the equilibrium quantity decreases. 
C) rises and the equilibrium quantity increases. 
D) falls and the equilibrium quantity decreases. 
E) rises and the equilibrium quantity remains the same.

Question 12

Use the information below to answer the following questions.
Fact 12.1.1 Money in the Bank
Two gas stations stand on opposite sides of the road: Rutter's Farm Store and Sheetz gas station. Rutter's doesn't even have to look across the highway to know when Sheetz changes its price for gas. When Sheetz raises the price, Rutter's pumps are busy. When Sheetz lowers prices, there's not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
-Refer to Fact 12.1.1. These gas stations operate in a ________market.

Accepted Answer

A) competitive 
B) noncompetitive 
C) monopolistic 
D) challenging 
E) consumer's 
A) competitive 
B) noncompetitive 
C) monopolistic 
D) challenging 
E) consumer's

Question 13

Use the table below to answer the following questions.
Table 12.2.3
  
-Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is

Accepted Answer

A) $1.00. 
B) $4.50. 
C) $4.70. 
D) $4.80. 
E) $4.40. 
A) $1.00. 
B) $4.50. 
C) $4.70. 
D) $4.80. 
E) $4.40.

Question 14

Firms in a perfectly competitive industry are in long-run equilibrium. A new technology becomes available that lowers production costs. Choose the statement that is incorrect.

Accepted Answer

A) The first firms to use the new technology make an economic profit. 
B) As more firms begin to use the new technology, market supply increases. 
C) Firms that use the old technology incur economic losses. 
D) Old technology firms exit the market. 
E) In the long run, price is equal to average variable cost. 
A) The first firms to use the new technology make an economic profit. 
B) As more firms begin to use the new technology, market supply increases. 
C) Firms that use the old technology incur economic losses. 
D) Old technology firms exit the market. 
E) In the long run, price is equal to average variable cost.

Question 15

If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing a level of output where

Accepted Answer

A) price is greater than marginal cost. 
B) price is greater than marginal revenue. 
C) marginal cost is greater than marginal revenue. 
D) marginal cost is greater than average total cost. 
E) average total cost is greater than marginal cost. 
A) price is greater than marginal cost. 
B) price is greater than marginal revenue. 
C) marginal cost is greater than marginal revenue. 
D) marginal cost is greater than average total cost. 
E) average total cost is greater than marginal cost.

Question 16

Use the figure below to answer the following questions.
   
Figure 12.1.1
-Refer to Figure 12.1.1. The firm competes in a perfectly competitive market. Curve A represents the firm's

Accepted Answer

A) total fixed cost curve. 
B) average fixed cost curve. 
C) average variable cost curve. 
D) total revenue curve. 
E) marginal revenue curve. 
A) total fixed cost curve. 
B) average fixed cost curve. 
C) average variable cost curve. 
D) total revenue curve. 
E) marginal revenue curve.

Question 17

Use the table below to answer the following questions.
Table 12.2.3
  
-Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The average fixed cost of producing the 4th balloon is

Accepted Answer

A) $4.30. 
B) $4.80. 
C) $4.70. 
D) $4.50. 
E) $1.00. 
A) $4.30. 
B) $4.80. 
C) $4.70. 
D) $4.50. 
E) $1.00.

Question 18

The market for maple syrup is perfectly competitive. Suppose that the market is in long-run equilibrium when the market demand for maple syrup increases. All of the following occur except

Accepted Answer

A) in the long run, firms make an economic profit. 
B) the price rises in the short run. 
C) the equilibrium quantity increases. 
D) in the short run, existing firms make an economic profit. 
E) the number of firms in the long run is greater than the number of firms in the short run. 
A) in the long run, firms make an economic profit. 
B) the price rises in the short run. 
C) the equilibrium quantity increases. 
D) in the short run, existing firms make an economic profit. 
E) the number of firms in the long run is greater than the number of firms in the short run.

Question 19

Use the figure below to answer the following questions.
   
Figure 12.2.2
-Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss. The firm is incurring a loss at

Accepted Answer

A) point A. 
B) point B. 
C) point C. 
D) point D. 
E) both points B and D. 
A) point A. 
B) point B. 
C) point C. 
D) point D. 
E) both points B and D.

Question 20

In the price range below minimum average variable cost, a perfectly competitive firm's supply curve is

Accepted Answer

A) horizontal at the market price. 
B) vertical at zero output. 
C) the same as its marginal cost curve. 
D) the same as its average variable cost curve. 
E) the same as its total variable cost curve. 
A) horizontal at the market price. 
B) vertical at zero output. 
C) the same as its marginal cost curve. 
D) the same as its average variable cost curve. 
E) the same as its total variable cost curve.

Exam 12: Perfect Competition

A perfectly competitive firm's supply curve includes its marginal cost curve at all prices above minimum

Use the table below to answer the following questions. Table 12.1.1 -Refer to Table 12.1.1 which gives the demand schedule for a perfectly competitive firm. If the quantity sold by the firm rises from 5 to 6, marginal revenue is

If price falls below minimum average variable cost, the best a firm can do is

Lin's fortune cookies are identical to the fortune cookies made by dozens of other firms, and there is free entry in the fortune cookie market. Buyers and sellers are well informed about prices. Lin's fortune cookies operates in a ________ market.

If a perfectly competitive firm's marginal revenue is greater than its marginal cost, the firm

A perfectly competitive firm is producing at the point at which marginal cost equals marginal revenue. If the firm increases production, total revenue ________ and economic profit ________.

For perfect competition to arise, it is necessary that market demand be

A perfectly competitive market is characterized by

Consider a perfectly competitive market. In the short run, if demand increases due to a technological advance, the equilibrium price

Use the table below to answer the following questions. Table 12.2.3 -Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The marginal cost of increasing production from 4 balloons an hour to 5 balloons an hour is

Firms in a perfectly competitive industry are in long-run equilibrium. A new technology becomes available that lowers production costs. Choose the statement that is incorrect.

If a profit-maximizing firm in a perfectly competitive market is making an economic profit, then it must be producing a level of output where

Use the figure below to answer the following questions. Figure 12.1.1 -Refer to Figure 12.1.1. The firm competes in a perfectly competitive market. Curve A represents the firm's

Use the table below to answer the following questions. Table 12.2.3 -Refer to Table 12.2.3, which gives the total cost schedule for Brenda's Balloon Shop, a perfectly competitive firm. The average fixed cost of producing the 4th balloon is

The market for maple syrup is perfectly competitive. Suppose that the market is in long-run equilibrium when the market demand for maple syrup increases. All of the following occur except

Use the figure below to answer the following questions. Figure 12.2.2 -Refer to Figure 12.2.2, which shows a perfectly competitive firm's economic profit and loss. The firm is incurring a loss at

In the price range below minimum average variable cost, a perfectly competitive firm's supply curve is

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A perfectly competitive firm is producing at the point at which marginal cost equals marginal revenue. If the firm increases production, total revenue and economic profit .