Question 1

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Accepted Answer

A) True 
 B)False

Question 2

Figure 9-2
  
-Refer to Figure 9-2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

Accepted Answer

A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output. 
A)  Its profit increases by the size of the vertical distance df. 
B)  It makes less profit. 
C)  It incurs a loss. 
D)  It will be moving toward its profit maximizing output.

Question 3

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

Accepted Answer

A)  his Peanut Shoppe's total revenue exceeds his fixed cost. 
B)  his Peanut Shoppe's total revenue exceeds his variable cost. 
C)  his Peanut Shoppe's total revenue exceeds his implicit costs. 
D)  his Peanut Shoppe's total revenue exceeds his capital costs. 
A)  his Peanut Shoppe's total revenue exceeds his fixed cost. 
B)  his Peanut Shoppe's total revenue exceeds his variable cost. 
C)  his Peanut Shoppe's total revenue exceeds his implicit costs. 
D)  his Peanut Shoppe's total revenue exceeds his capital costs.

Question 4

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question. 
A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 5

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 6

Figure 9-4
   Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
-Refer to Figure 9-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Accepted Answer

A)  $7,200 
B)  $6,480 
C)  $5,400 
D)  $3,960 
A)  $7,200 
B)  $6,480 
C)  $5,400 
D)  $3,960

Question 7

Firms that are price takers

Accepted Answer

A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price. 
A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price.

Question 8

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

Accepted Answer

A)  loss of $14,000 
B)  profit of $14,000 
C)  profit of $50,000 
D)  There is insufficient information to answer the question. 
A)  loss of $14,000 
B)  profit of $14,000 
C)  profit of $50,000 
D)  There is insufficient information to answer the question.

Question 9

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 10

A very large number of small sellers who sell identical products imply

Accepted Answer

A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand curve for each seller's product. 
C)  the inability of one seller to influence the price. 
D)  chaos in the market. 
A)  a multitude of vastly different selling prices. 
B)  a downward sloping demand curve for each seller's product. 
C)  the inability of one seller to influence the price. 
D)  chaos in the market.

Question 11

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs. 
A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs.

Question 12

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 produce

Accepted Answer

A)  Q₂ units. 
B)  Q₃ units. 
C)  Q₄ units. 
D)  zero units. 
A)  Q₂ units. 
B)  Q₃ units. 
C)  Q₄ units. 
D)  zero units.

Question 13

Which of the following is a characteristic of an oligopolistic market structure?

Accepted Answer

A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals. 
A)  There are few dominant sellers. 
B)  Each firm sells a unique product. 
C)  It is easy for new firms to enter the industry. 
D)  Each firm need not react to the actions of rivals.

Question 14

Figure 9-19
  
-Refer to Figure 9-19.The figure above shows the cost curves of a perfectly competitive firm in the coffee market.Use the graph in Figure 9-19 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 15

The minimum point on the average variable cost curve is called

Accepted Answer

A)  the shutdown point. 
B)  the break-even point. 
C)  the loss-minimizing point. 
D)  the point of diminishing returns. 
A)  the shutdown point. 
B)  the break-even point. 
C)  the loss-minimizing point. 
D)  the point of diminishing returns.

Question 16

Figure 9-16
  
-Refer to Figure 9-16.Which panel best represents the perfectly competitive organic produce market in which some firms are earning short-run economic profits,and the Surgeon General announces that switching from non-organic produce to organic produce will add 5 years to the average life span of consumers?

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 17

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

Productive efficiency refers to the situ

Question 18

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising the price 
A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising the price

Question 19

To maximize profit,a firm will produce the level of output where MR = MC.If a firm actually makes a profit depends on the relationship of price to average total cost.What are the three possible relationships between price and average total cost that determine if a firm will make a profit,experience a loss,or break even?

Accepted Answer

If P > ATC,the firm makes a pr

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.

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Figure 9-2 -Refer to Figure 9-2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

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

Figure 9-4 Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 9-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Firms that are price takers

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

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

A very large number of small sellers who sell identical products imply

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

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 produce

Which of the following is a characteristic of an oligopolistic market structure?

The minimum point on the average variable cost curve is called

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

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

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

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Figure 9-2 -Refer to Figure 9-2.Suppose the firm is currently producing Q₂ units.What happens if it expands output to Q₃ units?

Ben's Peanut Shoppe suffers a short-run loss.Ben will not choose to shut down if

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

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

Figure 9-4 Figure 9-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market. -Refer to Figure 9-4.If the market price is $30 and if the firm is producing output,what is the amount of its total variable cost?

Firms that are price takers

A perfectly competitive apple farm produces 1,000 bushels of apples at a total cost of $36,000.The price of each bushel is $50.Calculate the firm's short-run profit or loss.

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

A very large number of small sellers who sell identical products imply

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are

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 produce

Which of the following is a characteristic of an oligopolistic market structure?

The minimum point on the average variable cost curve is called

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

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

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

Filters