Question 1

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 2

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Accepted Answer

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

Question 4

Figure 12-19
  
-Refer to Figure 12-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 12-19 to answer the following questions.Assume the market price is $3 per pound.
a.What is the lowest price at which the coffee grower will supply output in the short run?
b.In the diagram draw the firm's demand curve (label this "MR" for marginal revenue).
c.What is the firm's profit-maximizing output?
d.Is the firm earning a profit or a loss? Identify the area in the graph that represents the firm's profit or loss.
e.Explain how entry or exit will occur in the market to ensure that firms will break even in the long run.

Accepted Answer

a.$1.50 per pound.This represents the lo

Question 5

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney.The lease has five years remaining and requires a monthly payment of $4,000.Max's explicit cost amounts to $3,000 per month more than his revenue.Should Max continue operating his business?

Accepted Answer

A) Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B) Max should continue to run the tattoo parlor until his lease runs out. 
C) If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D) This cannot be determined without information on his revenue. 
A) Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. 
B) Max should continue to run the tattoo parlor until his lease runs out. 
C) If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business. 
D) This cannot be determined without information on his revenue.

Question 6

Figure 12-3
  
-Refer to Figure 12-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

Accepted Answer

A) P₂ deP₁ 
B) P₃cbP₁ 
C) P₃caP₀ 
D) 0P₁ bQ₁ 
A) P₂ deP₁ 
B) P₃cbP₁ 
C) P₃caP₀ 
D) 0P₁ bQ₁

Question 7

Article Summary
According to the Department of Agriculture, net farm income will fall from $91.1 billion in 2014 to $58.3 billion in 2015, a 36 percent drop and the largest percentage decline since 1983.Falling prices on corn and soybeans are responsible for a portion of the decline in income, as are lower prices for dairy products, hogs, and chickens.The USDA is, however, predicting lower production costs due to falling prices for energy, seed, fertilizer, and pesticides.
Source: Jesse Newman, "U.S.Farm Income to Fall to Lowest Level in Nine Years," Wall Street Journal, August 25, 2015.
-Refer to the Article Summary above.Assume that after the record decline in U.S.farm income in 2015, farmers are expected to break even in 2016.This means that at the quantity being produced in 2016

Accepted Answer

A) MC = AVC. 
B) MR = MC. 
C) MR = ATC. 
D) AVC = ATC. 
A) MC = AVC. 
B) MR = MC. 
C) MR = ATC. 
D) AVC = ATC.

Question 8

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

Accepted Answer

A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information. 
A) In the short run, the typical firm increases its output and makes an above normal profit. 
B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. 
C) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. 
D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

Question 9

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 10

Figure 12-5
   
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.If the market price is $20, what is the firm's profit-maximizing output?

Accepted Answer

A) 750 units 
B) 1,100 units 
C) 1,350 units 
D) 1,800 units 
A) 750 units 
B) 1,100 units 
C) 1,350 units 
D) 1,800 units

Question 11

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 12

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency. 
A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Figure 12-5
   
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 12-5.The figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1,000 due to a new environmental regulation, what happens to its profit-maximizing output level?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else. 
A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease, or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question 15

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.What is the amount of its total fixed cost?

Accepted Answer

A) $1,080 
B) $1,440 
C) $2,520 
D) It cannot be determined. 
A) $1,080 
B) $1,440 
C) $2,520 
D) It cannot be determined.

Question 16

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

Accepted Answer

A) True 
 B)False

Question 17

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.

Accepted Answer

A) True 
 B)False

Question 18

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

Accepted Answer

A) the minimum efficient scale. 
B) where maximum economic profit is earned by producers. 
C) where firm profit is large enough to finance research and development. 
D) one which guarantees economic profit. 
A) the minimum efficient scale. 
B) where maximum economic profit is earned by producers. 
C) where firm profit is large enough to finance research and development. 
D) one which guarantees economic profit.

Question 19

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

A) should produce in the short run. 
B) is making short-run profits. 
C) should shut down in the short run. 
D) has covered its fixed cost. 
A) should produce in the short run. 
B) is making short-run profits. 
C) should shut down in the short run. 
D) has covered its fixed cost.

Question 20

Figure 12-16
  
-Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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

A firm will break even when

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Figure 12-3 -Refer to Figure 12-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

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?

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the firm's profit-maximizing output?

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

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

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.What is the amount of its total fixed cost?

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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

Exam 12: Firms in Perfectly Competitive Markets

A firm will break even when

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Figure 12-3 -Refer to Figure 12-3.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimizing quantity.Identify the area that represents the loss.

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?

Figure 12-5 Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 12-5.If the market price is $20, what is the firm's profit-maximizing output?

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product, the firm will be able to earn economic profits in the long run.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

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

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.What is the amount of its total fixed cost?

In the short run, a firm that incurs losses might choose to produce rather than shut down if the amount of its revenue is less than its fixed cost.

In the short run, a firm might choose to produce rather than shut down even if its market price is less than its average total cost of production.

If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Figure 12-16 -Refer to Figure 12-16.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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