Question 1

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Accepted Answer

A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic. 
A) The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B) The firm will not sell any output. 
C) The firm's total revenue will increase only if the demand for its product is inelastic. 
D) The firm's total revenue will increase only if the demand for its product is elastic.

Question 2

Figure 12-10
  
-Refer to Figure 12-10.At the profit-maximizing output level, the firm earns

Accepted Answer

A) zero economic profit. 
B) a profit of $600. 
C) a profit of $1,200. 
D) a profit of $2,700. 
A) zero economic profit. 
B) a profit of $600. 
C) a profit of $1,200. 
D) a profit of $2,700.

Question 3

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."

Question 4

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 5

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 and the firm is producing output, what is the amount of the firm's profit or loss?

Accepted Answer

A) loss of $1,080 
B) profit of $1,440 
C) loss of $2,520 
D) profit of $1,300 
A) loss of $1,080 
B) profit of $1,440 
C) loss of $2,520 
D) profit of $1,300

Question 6

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

Accepted Answer

A) True 
 B)False

Question 7

Both buyers and sellers are price takers in a perfectly competitive market because

Accepted Answer

A) the price is determined by government intervention and dictated to buyers and sellers. 
B) each buyer and seller knows it is illegal to conspire to affect price. 
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) each buyer and seller is too small relative to others to independently affect the market price. 
A) the price is determined by government intervention and dictated to buyers and sellers. 
B) each buyer and seller knows it is illegal to conspire to affect price. 
C) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) each buyer and seller is too small relative to others to independently affect the market price.

Question 8

Figure 12-7
   
Figure 12-7 illustrates the cost curves of a perfectly competitive firm.
-Refer to Figure 12-7.If the market price is P₂ the firm

Accepted Answer

A) will break even and produce a quantity of Q₂. 
B) will make a profit and produce a quantity of Q₂. 
C) will make a profit and produce a quantity of Q₁. 
D) will make a profit and produce a quantity of Q₃. 
A) will break even and produce a quantity of Q₂. 
B) will make a profit and produce a quantity of Q₂. 
C) will make a profit and produce a quantity of Q₁. 
D) will make a profit and produce a quantity of Q₃.

Question 9

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 10

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

Accepted Answer

A) should raise its price above its average variable cost. 
B) should continue to produce and increase its demand. 
C) should stop production by shutting down temporarily. 
D) should adopt new technology in order to lower its costs of production. 
A) should raise its price above its average variable cost. 
B) should continue to produce and increase its demand. 
C) should stop production by shutting down temporarily. 
D) should adopt new technology in order to lower its costs of production.

Question 11

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

Accepted Answer

A) There is a large number of independently acting small sellers. 
B) All sellers sell products that are differentiated. 
C) There are low barriers to entry of new firms. 
D) Each firm must react to actions of other firms. 
A) There is a large number of independently acting small sellers. 
B) All sellers sell products that are differentiated. 
C) There are low barriers to entry of new firms. 
D) Each firm must react to actions of other firms.

Question 12

Figure 12-6
   
Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples.
-Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Accepted Answer

A) keep production at 20 thousand pounds. 
B) increase production to the output rate indicated by point d. 
C) increase production to the output rate indicated by point e. 
D) decrease production to the output rate indicated by point a. 
A) keep production at 20 thousand pounds. 
B) increase production to the output rate indicated by point d. 
C) increase production to the output rate indicated by point e. 
D) decrease production to the output rate indicated by point a.

Question 13

Which of the following is the best example of a perfectly competitive firm?

Accepted Answer

A) a corn farmer in Illinois 
B) a Taco Bell restaurant 
C) the Ford Motor Company 
D) United Parcel Service (UPS) 
A) a corn farmer in Illinois 
B) a Taco Bell restaurant 
C) the Ford Motor Company 
D) United Parcel Service (UPS)

Question 14

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 15

If a firm shuts down in the short run it will

Accepted Answer

A) break even. 
B) declare bankruptcy. 
C) suffer a loss equal to its variable costs. 
D) suffer a loss equal to its fixed costs. 
A) break even. 
B) declare bankruptcy. 
C) suffer a loss equal to its variable costs. 
D) suffer a loss equal to its fixed costs.

Question 16

Table 12-2
   
Table 12-2 lists the various pounds (lbs.)of apples that Margie Stattler can sell.Assume that Margie operates in a perfectly competitive market.
-Refer to Table 12-2.What is Margie's total revenue if she sells 250 pounds of apples?

Accepted Answer

A) $250 
B) $500 
C) $750 
D) There is not enough information in the table to determine Margie's total revenue. 
A) $250 
B) $500 
C) $750 
D) There is not enough information in the table to determine Margie's total revenue.

Question 17

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

Accepted Answer

A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant. 
A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant.

Question 18

Table 12-1
   
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases.Assume that output can only be increased in batches of 100 units.
-Refer to Table 12-1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximizing output level?

Accepted Answer

A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down. 
A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down.

Question 19

How are sunk costs and fixed costs related?

Accepted Answer

A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other. 
A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other.

Question 20

What is allocative efficiency?

Accepted Answer

A) It refers to a situation in which resources are allocated to their highest profit use. 
B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D) It refers to a situation in which resources are allocated fairly to all consumers in a society. 
A) It refers to a situation in which resources are allocated to their highest profit use. 
B) It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost. 
C) It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it. 
D) It refers to a situation in which resources are allocated fairly to all consumers in a society.

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Figure 12-10 -Refer to Figure 12-10.At the profit-maximizing output level, the firm earns

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

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 and the firm is producing output, what is the amount of the firm's profit or loss?

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

Both buyers and sellers are price takers in a perfectly competitive market because

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂ the firm

In perfect competition

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

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

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Which of the following is the best example of a perfectly competitive firm?

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?

If a firm shuts down in the short run it will

Table 12-2 Table 12-2 lists the various pounds (lbs.)of apples that Margie Stattler can sell.Assume that Margie operates in a perfectly competitive market. -Refer to Table 12-2.What is Margie's total revenue if she sells 250 pounds of apples?

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

How are sunk costs and fixed costs related?

What is allocative efficiency?

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 More Realistic Setting

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

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Exam 12: Firms in Perfectly Competitive Markets

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Figure 12-10 -Refer to Figure 12-10.At the profit-maximizing output level, the firm earns

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

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 and the firm is producing output, what is the amount of the firm's profit or loss?

An increase in a firm's fixed cost will not change the firm's profit-maximizing output in the short run.

Both buyers and sellers are price takers in a perfectly competitive market because

Figure 12-7 Figure 12-7 illustrates the cost curves of a perfectly competitive firm. -Refer to Figure 12-7.If the market price is P₂ the firm

In perfect competition

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

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

Figure 12-6 Figure 12-6 shows the demand, marginal cost (MC)and average total cost (ATC)curves for Jason's House of Apples. -Refer to Figure 12-6.Jason is currently producing 20 thousand pounds of apples.To maximize his profit Jason should

Which of the following is the best example of a perfectly competitive firm?

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?

If a firm shuts down in the short run it will

Table 12-2 Table 12-2 lists the various pounds (lbs.)of apples that Margie Stattler can sell.Assume that Margie operates in a perfectly competitive market. -Refer to Table 12-2.What is Margie's total revenue if she sells 250 pounds of apples?

If, in a perfectly competitive industry, the market price facing a firm is above its average total cost at the output where marginal revenue equals marginal cost, then

How are sunk costs and fixed costs related?

What is allocative efficiency?

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 More Realistic Setting

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