Question 1

The slope of a perfectly competitive firm's demand curve is

Accepted Answer

A) infinity. 
B) zero. 
C) 1. 
D) greater than 1. 
E) negative. 
A) infinity. 
B) zero. 
C) 1. 
D) greater than 1. 
E) negative.

Question 2

When a firm is a "price taker," the firm

Accepted Answer

A) can charge any price that it wants to charge, that is, "take" any price it chooses. 
B) pays a fixed price for all of its fixed inputs. 
C) will accept ("take")the lowest price that its customers offer. 
D) pays a fixed price for all of its variable inputs. 
E) cannot influence the market price of the good that it sells. 
A) can charge any price that it wants to charge, that is, "take" any price it chooses. 
B) pays a fixed price for all of its fixed inputs. 
C) will accept ("take")the lowest price that its customers offer. 
D) pays a fixed price for all of its variable inputs. 
E) cannot influence the market price of the good that it sells.

Question 3

Use the figure below to answer the following questions.
   
Figure 12.4.3
-Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. Firms are

Accepted Answer

A) making an economic profit, and some firms leave the market. Market supply decreases. 
B) making an economic profit, and some firms enter the market. Market supply increases. 
C) incurring an economic loss, and some firms leave the market. Market supply decreases. 
D) incurring an economic loss, and some firms enter the market. Market supply increases. 
E) incurring an economic loss, but since they are covering average variable cost, no one will exit the market in the long run. 
A) making an economic profit, and some firms leave the market. Market supply decreases. 
B) making an economic profit, and some firms enter the market. Market supply increases. 
C) incurring an economic loss, and some firms leave the market. Market supply decreases. 
D) incurring an economic loss, and some firms enter the market. Market supply increases. 
E) incurring an economic loss, but since they are covering average variable cost, no one will exit the market in the long run.

Question 4

Which one of the following need not be satisfied to achieve allocative efficiency?

Accepted Answer

A) Marginal social cost equals marginal social benefit. 
B) The sum of consumer surplus and producer surplus is maximized. 
C) Price equals marginal social benefit. 
D) Price equals marginal social cost. 
E) Only high-quality goods are produced. 
A) Marginal social cost equals marginal social benefit. 
B) The sum of consumer surplus and producer surplus is maximized. 
C) Price equals marginal social benefit. 
D) Price equals marginal social cost. 
E) Only high-quality goods are produced.

Question 5

Use the figure below to answer the following questions.
   
Figure 12.4.3
-Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market

Accepted Answer

A) demand will increase. 
B) demand will decrease. 
C) supply will increase. 
D) supply will decrease. 
E) demand and market supply will both increase. 
A) demand will increase. 
B) demand will decrease. 
C) supply will increase. 
D) supply will decrease. 
E) demand and market supply will both increase.

Question 6

A price taker is a firm that

Accepted Answer

A) must lower its price if it wants to sell more output. 
B) sets the market price. 
C) cannot influence the market price. 
D) is incurring an economic loss. 
E) can raise its price if it lowers output. 
A) must lower its price if it wants to sell more output. 
B) sets the market price. 
C) cannot influence the market price. 
D) is incurring an economic loss. 
E) can raise its price if it lowers output.

Question 7

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 variable cost of producing the 1st balloon is

Accepted Answer

A) $1.00. 
B) $4.00. 
C) $2.00. 
D) $4.80. 
E) $3.00. 
A) $1.00. 
B) $4.00. 
C) $2.00. 
D) $4.80. 
E) $3.00.

Question 8

Marginal revenue is

Accepted Answer

A) the change in total quantity that results from a one-unit increase in the price of the good. 
B) the change in total revenue that results from a one-unit increase in the quantity sold. 
C) economic profit divided by the quantity sold. 
D) the change in economic profit that results from a one-unit increase in the quantity sold. 
E) total revenue minus total cost. 
A) the change in total quantity that results from a one-unit increase in the price of the good. 
B) the change in total revenue that results from a one-unit increase in the quantity sold. 
C) economic profit divided by the quantity sold. 
D) the change in economic profit that results from a one-unit increase in the quantity sold. 
E) total revenue minus total cost.

Question 9

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 is a straight line because the firm

Accepted Answer

A) is a price taker. 
B) faces constant returns to scale. 
C) wants to maximize profits. 
D) has perfect information. 
E) has constant marginal cost. 
A) is a price taker. 
B) faces constant returns to scale. 
C) wants to maximize profits. 
D) has perfect information. 
E) has constant marginal cost.

Question 10

Use the table below to answer the following questions.
Table 12.2.5
  
-Refer to Table 12.2.5. Archibald's Tattoos is a perfectly competitive firm. The firm's total costs are shown in the table. The price at Archibald's shut-down point is

Accepted Answer

A) $10.00. 
B) $15.00. 
C) $12.50. 
D) $13.33. 
E) $17.00. 
A) $10.00. 
B) $15.00. 
C) $12.50. 
D) $13.33. 
E) $17.00.

Question 11

Use the figure below to answer the following questions.
   
Figure 12.4.1
-Refer to Figure 12.4.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,

Accepted Answer

A) firms that remain in the market will expand production. 
B) market demand will increase. 
C) market supply will increase. 
D) firms will enter the market. 
E) firms that remain in the market will reduce production. 
A) firms that remain in the market will expand production. 
B) market demand will increase. 
C) market supply will increase. 
D) firms will enter the market. 
E) firms that remain in the market will reduce production.

Question 12

Economic profit equals

Accepted Answer

A) total fixed cost plus total variable cost. 
B) total revenue minus marginal cost. 
C) marginal revenue minus marginal cost. 
D) total revenue minus total cost. 
E) total revenue minus total variable cost. 
A) total fixed cost plus total variable cost. 
B) total revenue minus marginal cost. 
C) marginal revenue minus marginal cost. 
D) total revenue minus total cost. 
E) total revenue minus total variable cost.

Question 13

In a perfectly competitive market, the short-run market supply curve is

Accepted Answer

A) the horizontal sum of the supply curves of all the individual firms. 
B) the vertical sum of the supply curves of all the individual firms. 
C) vertical at the total level of output being produced by all firms. 
D) horizontal at the current market price. 
E) upward sloping with a constant slope. 
A) the horizontal sum of the supply curves of all the individual firms. 
B) the vertical sum of the supply curves of all the individual firms. 
C) vertical at the total level of output being produced by all firms. 
D) horizontal at the current market price. 
E) upward sloping with a constant slope.

Question 14

Use the information below to answer the following questions.
Fact 12.2.1 Chevy Volt Production Temporarily Shut Down
GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.
Source: Politico, March 2, 2012
-Refer to Fact 12.2.1. The shutdown decision ________ total fixed cost and ________ total variable cost.

Accepted Answer

A) decreases; decreases 
B) does not change; decreases 
C) does not change; does not change 
D) increases; does not change 
E) does not change; increases 
A) decreases; decreases 
B) does not change; decreases 
C) does not change; does not change 
D) increases; does not change 
E) does not change; increases

Question 15

If a perfectly competitive firm's marginal revenue is less 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) must raise 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) must raise the price.

Question 16

Initially, a perfectly competitive market that has 1,000 firms is in long-run equilibrium. Then 100 firms in the industry adopt a new technology that reduces the average cost of producing the good. In the short run, the price ________, firms with the new technology make ________ economic profit, and firms with the old technology ________.

Accepted Answer

A) remains the same; zero; incur an economic loss 
B) remains the same; positive; break even 
C) falls; positive; incur an economic loss 
D) remains the same; positive; incur an economic loss 
E) falls; break even; incur an economic loss 
A) remains the same; zero; incur an economic loss 
B) remains the same; positive; break even 
C) falls; positive; incur an economic loss 
D) remains the same; positive; incur an economic loss 
E) falls; break even; incur an economic loss

Question 17

An example of a perfectly competitive industry is the

Accepted Answer

A) airline industry. 
B) beer industry. 
C) running shoe industry. 
D) fast food industry. 
E) wheat industry. 
A) airline industry. 
B) beer industry. 
C) running shoe industry. 
D) fast food industry. 
E) wheat industry.

Exam 12: Perfect Competition

The slope of a perfectly competitive firm's demand curve is

When a firm is a "price taker," the firm

Use the figure below to answer the following questions. Figure 12.4.3 -Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. Firms are

Which one of the following need not be satisfied to achieve allocative efficiency?

Use the figure below to answer the following questions. Figure 12.4.3 -Refer to Figure 12.4.3, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run, market

A price taker is a firm that

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 variable cost of producing the 1st balloon is

Marginal revenue is

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 is a straight line because the firm

Use the table below to answer the following questions. Table 12.2.5 -Refer to Table 12.2.5. Archibald's Tattoos is a perfectly competitive firm. The firm's total costs are shown in the table. The price at Archibald's shut-down point is

Use the figure below to answer the following questions. Figure 12.4.1 -Refer to Figure 12.4.1, which shows the cost curves and marginal revenue curve of a firm in a perfectly competitive market. In the long run,

Economic profit equals

In a perfectly competitive market, the short-run market supply curve is

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

An example of a perfectly competitive industry is the

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