Question 1

If new firms enter a perfectly competitive industry, the market supply

Accepted Answer

A) does not change. 
B) becomes more price elastic. 
C) becomes more price inelastic. 
D) increases. 
E) decreases because each firm produces less than before the entry. 
A) does not change. 
B) becomes more price elastic. 
C) becomes more price inelastic. 
D) increases. 
E) decreases because each firm produces less than before the entry.

Question 2

If a perfectly competitive firm's average total cost is less than the price, then the firm

Accepted Answer

A) incurs an economic loss. 
B) makes an economic profit. 
C) makes zero economic profit. 
D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. 
E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit. 
A) incurs an economic loss. 
B) makes an economic profit. 
C) makes zero economic profit. 
D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. 
E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit.

Question 3

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?

Accepted Answer

A) $23 
B) $150 
C) $1,000 
D) $1,150 
E) $50 
A) $23 
B) $150 
C) $1,000 
D) $1,150 
E) $50

Question 4

-The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC₁, each produce 30 units, and the market price of the good is $16 per unit, then the firms

Accepted Answer

A) make zero economic profit and new firms enter the market. 
B) make zero economic profit and no firms enter or exit the market. 
C) make zero economic profit and some firms exit the market. 
D) incur an economic loss and some firms exit the market. 
E) make an economic profit and new firms enter the market. 
A) make zero economic profit and new firms enter the market. 
B) make zero economic profit and no firms enter or exit the market. 
C) make zero economic profit and some firms exit the market. 
D) incur an economic loss and some firms exit the market. 
E) make an economic profit and new firms enter the market.

Question 5

If perfectly competitive lawn care firms are making an economic profit, then

Accepted Answer

A) wages will be bid up until the economic profit are gone. 
B) the firms must be superior and will continue to make an economic profit. 
C) new firms will enter the industry. 
D) they are not equating marginal revenue to marginal cost. 
E) government regulation will be imposed to decrease their profit. 
A) wages will be bid up until the economic profit are gone. 
B) the firms must be superior and will continue to make an economic profit. 
C) new firms will enter the industry. 
D) they are not equating marginal revenue to marginal cost. 
E) government regulation will be imposed to decrease their profit.

Question 6

If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52, then to maximize its profit (or minimize its loss)the firm should

Accepted Answer

A) definitely produce the unit. 
B) shut down. 
C) not produce the unit but remain open. 
D) not produce the unit. Whether the firm should shut down or remain open cannot be determined without more information. 
E) produce the unit only if the price exceeds the average fixed cost. 
A) definitely produce the unit. 
B) shut down. 
C) not produce the unit but remain open. 
D) not produce the unit. Whether the firm should shut down or remain open cannot be determined without more information. 
E) produce the unit only if the price exceeds the average fixed cost.

Question 7

Why are perfectly competitive ranchers in Montana price takers?

Accepted Answer

Because one farmer's beef is identical t

Question 8

A perfectly competitive firm will maximize profit when the quantity produced is such that the

Accepted Answer

A) firm's total revenue is equal to total cost. 
B) firm's marginal revenue is equal to the price. 
C) firm's marginal revenue is equal to its marginal cost. 
D) price exceeds the firm's marginal cost by as much as possible. 
E) firm's marginal revenue exceeds its marginal cost by the maximum amount possible. 
A) firm's total revenue is equal to total cost. 
B) firm's marginal revenue is equal to the price. 
C) firm's marginal revenue is equal to its marginal cost. 
D) price exceeds the firm's marginal cost by as much as possible. 
E) firm's marginal revenue exceeds its marginal cost by the maximum amount possible.

Question 9

-The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm

Accepted Answer

A) will definitely shut down to minimize its losses. 
B) will stay open to produce and will make zero economic profit. 
C) will stay open to produce and will incur an economic loss. 
D) will stay open to produce and will make an economic profit. 
E) might shut down but more information is needed about the fixed cost. 
A) will definitely shut down to minimize its losses. 
B) will stay open to produce and will make zero economic profit. 
C) will stay open to produce and will incur an economic loss. 
D) will stay open to produce and will make an economic profit. 
E) might shut down but more information is needed about the fixed cost.

Question 10

Suppose a farmer raising beef is making a normal profit. Then, because of a scare about mad cow disease, the demand for beef decreases drastically. What happens to the profits of the beef farmer in the short run and in the long run?

Accepted Answer

In the short run, the fall in beef price

Question 11

$$\begin{array}{l}
\text { Average }\
\begin{array} { c c c } 
\begin{array} { c } 
\text { Quantity } \
\text { (units) }
\end{array} & \begin{array} { c } 
\text { variable cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Marginal cost } \
\text { (dollars) }
\end{array} \
\hline 1 & 8.00 & \
2 & 7.00 & 6.00 \
3 & 6.00 & 4.00 \
4 & 5.00 & 2.00 \
5 & 4.80 & 4.00 \
6 & 5.00 & 6.00 \
7 & 5.40 & 7.80 \
8 & 6.50 & 14.20 \
9 & 8.40 & 23.60 \
10 & 11.20 & 36.40
\end{array}
\end{array}$$
-Acme is a perfectly competitive firm. It has the cost schedules given in the above table and has a fixed cost of $12.00. The price of Acme's product is $14.20. What is Acme's most profitable amount of output?
 What is Acme's total economic profit or loss?

Accepted Answer

The profit maximizing level of output is

Question 12

Is the number of sellers in the market the only thing that is different in each of the four market types economists study?

Accepted Answer

No, the number of sellers is not the onl

Question 13

If perfectly firms are making an economic profit, the economic profit

Accepted Answer

A) attracts entry by more firms, which lowers the price. 
B) can be earned both in the short run and the long run. 
C) is less than the normal profit. 
D) leads to a decrease in market demand. 
E) generally leads to firms exiting as they seek higher profit in other markets. 
A) attracts entry by more firms, which lowers the price. 
B) can be earned both in the short run and the long run. 
C) is less than the normal profit. 
D) leads to a decrease in market demand. 
E) generally leads to firms exiting as they seek higher profit in other markets.

Question 14

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?

Accepted Answer

A) the profit-maximizing level of output 
B) how much to spend on advertising and sales promotion 
C) what price to charge buyers for the product 
D) whether or not to enter or exit an industry 
E) whether or not to change its plant size 
A) the profit-maximizing level of output 
B) how much to spend on advertising and sales promotion 
C) what price to charge buyers for the product 
D) whether or not to enter or exit an industry 
E) whether or not to change its plant size

Question 15

-American restaurants receive their supply of baby back-ribs from American farms and from farms in Denmark. In the figures above, the left diagram shows the perfectly competitive market for baby back ribs in the United States. The right figure shows the situation at Premium Standard Farm in Kansas, one of the many U.S. farms supplying these ribs.
Now assume that the United States imposes a ban on European meat in response to the foot-and-mouth disease that has infected livestock in Europe. (Which the United States did a few years ago.)In particular, suppose that the U.S. ban decreases the supply by 40 tons a year. Using the figure on the left, show the impact of this ban on the baby back rib market. Using the figure on the right, show the impact on Premium Standard Farm in Kansas.

Accepted Answer

@#IMG-DLM& 
 @#IMG-DLM& 
The ban on European meat decreases

Question 16

A perfectly competitive firm can

Accepted Answer

A) sell all of its output at the prevailing market price. 
B) set a higher price to customers who are willing to pay more. 
C) raise its price in order to increase its total revenue. 
D) sell additional output only by lowering its price. 
E) usually not sell all the output it produces, but still "over-produces" because there are some periods when it can sell the extra output at very profitable prices. 
A) sell all of its output at the prevailing market price. 
B) set a higher price to customers who are willing to pay more. 
C) raise its price in order to increase its total revenue. 
D) sell additional output only by lowering its price. 
E) usually not sell all the output it produces, but still "over-produces" because there are some periods when it can sell the extra output at very profitable prices.

Question 17

Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals

Accepted Answer

A) $5. 
B) $100. 
C) $500. 
D) $20. 
E) Information on the price of a can of paint is needed to answer the question. 
A) $5. 
B) $100. 
C) $500. 
D) $20. 
E) Information on the price of a can of paint is needed to answer the question.

Question 18

A market with a large number of sellers

Accepted Answer

A) can only be a perfectly competitive market. 
B) might be an oligopoly or a perfectly competitive market. 
C) might be a monopolistically competitive or a perfectly competitive market. 
D) might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market. 
E) can only be a monopolistically competitive market. 
A) can only be a perfectly competitive market. 
B) might be an oligopoly or a perfectly competitive market. 
C) might be a monopolistically competitive or a perfectly competitive market. 
D) might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market. 
E) can only be a monopolistically competitive market.

Question 19

The rutabaga market is perfectly competitive and the price of a ton of rutabagas rises. As a result, Rudy, a rutabaga farmer, will

Accepted Answer

A) decrease his output of rutabagas. 
B) not change his output of rutabagas because Rudy's firm is a price taker. 
C) increase his output of rutabagas. 
D) at first decrease and then increase his output of rutabagas. 
E) probably change his output of rutabagas, but more information is needed about the change in the marginal revenue of a ton of rutabagas. 
A) decrease his output of rutabagas. 
B) not change his output of rutabagas because Rudy's firm is a price taker. 
C) increase his output of rutabagas. 
D) at first decrease and then increase his output of rutabagas. 
E) probably change his output of rutabagas, but more information is needed about the change in the marginal revenue of a ton of rutabagas.

Question 20

In the short run, a perfectly competitive firm

Accepted Answer

A) can make only zero economic profit. 
B) can possibly make an economic profit or possibly incur an economic loss. 
C) produces the level of output that sets the average total cost equal to the market price. 
D) can vary all its inputs. 
E) can change only its fixed inputs. 
A) can make only zero economic profit. 
B) can possibly make an economic profit or possibly incur an economic loss. 
C) produces the level of output that sets the average total cost equal to the market price. 
D) can vary all its inputs. 
E) can change only its fixed inputs.

If new firms enter a perfectly competitive industry, the market supply

If a perfectly competitive firm's average total cost is less than the price, then the firm

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?

-The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC₁, each produce 30 units, and the market price of the good is $16 per unit, then the firms

If perfectly competitive lawn care firms are making an economic profit, then

If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52, then to maximize its profit (or minimize its loss)the firm should

Why are perfectly competitive ranchers in Montana price takers?

A perfectly competitive firm will maximize profit when the quantity produced is such that the

-The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm

Suppose a farmer raising beef is making a normal profit. Then, because of a scare about mad cow disease, the demand for beef decreases drastically. What happens to the profits of the beef farmer in the short run and in the long run?

Is the number of sellers in the market the only thing that is different in each of the four market types economists study?

If perfectly firms are making an economic profit, the economic profit

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?

A perfectly competitive firm can

Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals

A market with a large number of sellers

The rutabaga market is perfectly competitive and the price of a ton of rutabagas rises. As a result, Rudy, a rutabaga farmer, will

In the short run, a perfectly competitive firm

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters

Exam 11: Perfect Competition

If new firms enter a perfectly competitive industry, the market supply

If a perfectly competitive firm's average total cost is less than the price, then the firm

A perfectly competitive firm is producing 50 units of output and selling at the market price of $23. The firm's average total cost is $20. What is the firm's economic profit?

-The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC₁, each produce 30 units, and the market price of the good is $16 per unit, then the firms

If perfectly competitive lawn care firms are making an economic profit, then

If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52, then to maximize its profit (or minimize its loss)the firm should

Why are perfectly competitive ranchers in Montana price takers?

A perfectly competitive firm will maximize profit when the quantity produced is such that the

-The above figure shows a perfectly competitive firm. If the market price is more than $20 per unit, the firm

Suppose a farmer raising beef is making a normal profit. Then, because of a scare about mad cow disease, the demand for beef decreases drastically. What happens to the profits of the beef farmer in the short run and in the long run?

Is the number of sellers in the market the only thing that is different in each of the four market types economists study?

If perfectly firms are making an economic profit, the economic profit

In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision?

A perfectly competitive firm can

Suppose Pat's Paints is a perfectly competitive firm. If Pat's Paints' marginal revenue equals $5 per can, and Pat decides to sell 100 cans of paint, Pat's total revenue equals

A market with a large number of sellers

The rutabaga market is perfectly competitive and the price of a ton of rutabagas rises. As a result, Rudy, a rutabaga farmer, will

In the short run, a perfectly competitive firm

Getting Started

The Us and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities: Pollution, Education, and Health Care

Production and Cost

Monopoly

Monopolistic Competition and Oligopoly

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and Economic Growth

Money and the Monetary System

Aggregate Supply and Aggregate Demand

Fiscal Policy and Monetary Policy

Filters