Question 1

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

Accepted Answer

A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price. 
A)  the output where marginal revenue equals marginal cost. 
B)  any positive output the entrepreneur decides upon because all of it can be sold. 
C)  nothing at all; the firm shuts down. 
D)  the output where average total cost equals price.

Question 2

Jason,a high-school student,mows lawns for families in his neighborhood.The going rate is $12 for each lawn-mowing service.Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service.If the market for lawn mowing services is perfectly competitive,what would happen if Jason raised his price?

Accepted Answer

A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price, he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices. 
A)  He would lose some but not all his customers. 
B)  Initially, his customers might complain but over time they will come to accept the new rate. 
C)  If Jason raises his price, he would lose all his customers. 
D)  If Jason raises his price, then all others supplying the same service will also raise their prices.

Question 3

For a perfectly competitive firm,at profit maximization

Accepted Answer

A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized. 
A)  market price exceeds marginal cost. 
B)  total revenue is maximized. 
C)  marginal revenue equals marginal cost. 
D)  production must occur where average cost is minimized.

Question 4

Market supply is found by

Accepted Answer

A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost curve. 
A)  vertically summing the relevant part of each individual producer's marginal cost curve. 
B)  horizontally summing the relevant part of each individual producer's marginal cost curve. 
C)  vertically summing each individual producer's average total cost curve. 
D)  horizontally summing each individual producer's average total cost curve.

Question 5

Figure 9-10
  
-Refer to Figure 9-10.The firm's short-run supply curve is its

Accepted Answer

A)  marginal cost curve. 
B)  marginal cost curve from b and above. 
C)  marginal cost curve from c and above. 
D)  marginal cost curve from d and above. 
A)  marginal cost curve. 
B)  marginal cost curve from b and above. 
C)  marginal cost curve from c and above. 
D)  marginal cost curve from d and above.

Question 6

For a perfectly competitive firm,which of the following is not true at profit maximization?

Accepted Answer

A)  Market price is greater than marginal cost. 
B)  Marginal revenue equals marginal cost. 
C)  Total revenue minus total cost is maximized. 
D)  Price equals marginal cost. 
A)  Market price is greater than marginal cost. 
B)  Marginal revenue equals marginal cost. 
C)  Total revenue minus total cost is maximized. 
D)  Price equals marginal cost.

Question 7

Figure 9-8
  
-Refer to Figure 9-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

Accepted Answer

A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue 
A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue

Question 8

A constant-cost industry is an industry in which

Accepted Answer

A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs. 
A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs.

Question 9

Figure 9-9
   Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.At price P₂,the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even. 
A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even.

Question 10

If the market price is $25,the average revenue of selling five units is

Accepted Answer

A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125. 
A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125.

Question 11

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

Accepted Answer

A) True 
 B)False

Question 12

An industry's long-run supply curve shows

Accepted Answer

A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit. 
A)  the relationship in the long run between market price and quantity supplied. 
B)  how the government determines the price of the product. 
C)  how average productivity is changing. 
D)  greater than normal profit.

Question 13

Which of the following is not an assumption of perfectly competitive markets?

Accepted Answer

A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical. 
A)  There are many sellers and many buyers, all of which are small relative to the market. 
B)  Each firm produces a similar but not identical product. 
C)  There are no barriers to new firms entering the market. 
D)  The products sold by all firms in the market are identical.

Question 14

Figure 9-5
   Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Accepted Answer

A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected. 
A)  All the cost curves shift upward. 
B)  Only the average variable cost and average total cost curves shift upward; marginal cost is not affected. 
C)  Only the average total cost curve shifts upward; the marginal cost and average variable cost curves are not affected. 
D)  None of the curves shifts; only the fixed cost curve, which is not shown here, is affected.

Question 15

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 16

Table 9-1
 $\begin{array}{|c|c|c|}
\hline \text { Quantity } & \begin{array}{c}
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array}{c}
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1,000 & \$ 0 \
\hline 100 & 1,360 & 360 \
\hline 200 & 1,560 & 560 \
\hline 300 & 1,960 & 960 \
\hline 400 & 2,760 & 1,760 \
\hline 500 & 4,000 & 3,000 \
\hline 600 & 5,800 & 4,800 \
\hline
\end{array}$ Table 9-1 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 9-1.If the market price of each camera case is $8,what is the firm's total revenue when the profit-maximizing quantity is found at the output where MR = MC?

Accepted Answer

A)  $2,400 
B)  $3,200 
C)  $4,000 
D)  $4,800 
A)  $2,400 
B)  $3,200 
C)  $4,000 
D)  $4,800

Question 17

Figure 9-14
  
-Refer to Figure 9-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on 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 18

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 19

Figure 9-9
   Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 9-9.Identify the firm's short-run supply curve.

Accepted Answer

A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above 
A)  the marginal cost curve 
B)  the marginal cost curve from a and above 
C)  the marginal cost curve from b and above 
D)  the marginal cost curve from d and above

Question 20

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.

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

For a perfectly competitive firm,at profit maximization

Market supply is found by

Figure 9-10 -Refer to Figure 9-10.The firm's short-run supply curve is its

For a perfectly competitive firm,which of the following is not true at profit maximization?

Figure 9-8 -Refer to Figure 9-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

A constant-cost industry is an industry in which

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would

If the market price is $25,the average revenue of selling five units is

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

An industry's long-run supply curve shows

Which of the following is not an assumption of perfectly competitive markets?

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Figure 9-14 -Refer to Figure 9-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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.

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.Identify the firm's short-run supply curve.

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

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

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Exam 9: Firms in Perfectly Competitive Markets

When a perfectly competitive firm finds that its market price is below its minimum average variable cost,it will sell

For a perfectly competitive firm,at profit maximization

Market supply is found by

Figure 9-10 -Refer to Figure 9-10.The firm's short-run supply curve is its

For a perfectly competitive firm,which of the following is not true at profit maximization?

Figure 9-8 -Refer to Figure 9-8.Suppose the firm produces 4,000 units.What does the shaded area labeled A represent?

A constant-cost industry is an industry in which

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.At price P₂,the firm would

If the market price is $25,the average revenue of selling five units is

For a given quantity,the total profit of a perfectly competitive firm is equal to the vertical distance between the firm's total revenue curve and its total cost curve.

An industry's long-run supply curve shows

Which of the following is not an assumption of perfectly competitive markets?

Figure 9-5 Figure 9-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 9-5.If the firm's fixed cost increases by $1,000 due to a new environmental regulation,what happens in the diagram above?

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Figure 9-14 -Refer to Figure 9-14.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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.

Figure 9-9 Figure 9-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm. -Refer to Figure 9-9.Identify the firm's short-run supply curve.

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

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, The Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology,Production,and Costs

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, International Trade, and Exchange Rates

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