Question 1

Figure 8.2  
-Refer to Figure 8.2.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-maximising 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-maximising output. B

Question 2

Firms in perfect competition are price takers because

Accepted Answer

A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence price. 
A) one firm determines the price that all other firms in the industry will charge. 
B) consumers have enough market power to set prices. 
C) firms accept the price determined by the government. 
D) each firm is too small relative to the market to be able to influence price. D

Question 3

Figure 8.7   Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 8.7.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. C

Question 4

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.What is the firm's short-run profit or loss?

Accepted Answer

A) Loss of $6000 
B) Profit of $6000 
C) Profit of $30 000 
D) There is insufficient information to answer the question. 
A) Loss of $6000 
B) Profit of $6000 
C) Profit of $30 000 
D) There is insufficient information to answer the question.

Question 5

If a typical firm in a perfectly competitive industry is earning profits, then

Accepted Answer

A) all firms will continue to earn profits. 
B) new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. 
C) new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. 
D) the number of firms in the industry will remain constant in the long run. 
A) all firms will continue to earn profits. 
B) new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. 
C) new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. 
D) the number of firms in the industry will remain constant in the long run.

Question 6

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic. 
A) demand for the product will exceed supply. 
B) the seller would start a price war. 
C) the seller can sell any quantity she wants at the prevailing market price. 
D) demand is perfectly inelastic.

Question 7

Which of the following is not a characteristic of a perfect competition?

Accepted Answer

A) Heavy advertising by individual sellers. 
B) Homogeneous products. 
C) Sellers are price takers. 
D) A horizontal demand curve for individual sellers. 
A) Heavy advertising by individual sellers. 
B) Homogeneous products. 
C) Sellers are price takers. 
D) A horizontal demand curve for individual sellers.

Question 8

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

Accepted Answer

Allocative efficiency refers to a state

Question 9

Table 8.5   Use the table to answer the following questions.
a.Complete Table 8.5 by filling in the blank cells.
b.Werner is selling in a perfectly competitive market at a price of $40.What is the profit maximising or loss-minimising output?
c.Calculate the firm's profit or loss.
d.Should the firm continue to produce in the short run? Explain.
e.If the firm's fixed costs were $30 higher, what would be the profit-maximising output level in the short run? Indicate whether the output level will increase, decrease or remain unchanged compared to your answer in b.
f.Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20 what is the profit-maximising or loss-minimising output?
g.Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer.
h. Suppose the fixed cost remains at $76.What price corresponds to the shut-down point?
i.Suppose the fixed cost remains at $76.What price corresponds to the break-even point?
__________________________________________________________________________________________________________________________________________________________________________________________
-Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 8.5 shows the firm's cost schedule.

Accepted Answer

a. @#IMG-DLM& b.Quantity = 8 units.
c.Profit = $54

Question 10

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 11

What does an industry's long-run supply curve show?

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 12

In an increasing-cost industry, the long-run supply curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8.5   Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 8.5.The amount of the firm's fixed cost of production is

Accepted Answer

A) $5400 
B) $6750 
C) $8100 
D) It cannot be determined. 
A) $5400 
B) $6750 
C) $8100 
D) It cannot be determined.

Question 14

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 15

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

Accepted Answer

A) The price remains constant at $48. 
B) The price falls below $48. 
C) The price rises above $48. 
D) There is insufficient information to answer the question. 
A) The price remains constant at $48. 
B) The price falls below $48. 
C) The price rises above $48. 
D) There is insufficient information to answer the question.

Question 16

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 price 
A) Shutting down 
B) Reducing production 
C) Reducing the use of variable factors 
D) Raising price

Question 17

Figure 8.14  
-Refer to Figure 8.14.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 nonorganic 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 18

Figure 8.8  
-Refer to Figure 8.8.What does the firm earn at the profit-maximising output level?

Accepted Answer

A) Zero economic profit. 
B) A profit of $600. 
C) A profit of $1200. 
D) A profit of $2700. 
A) Zero economic profit. 
B) A profit of $600. 
C) A profit of $1200. 
D) A profit of $2700.

Question 19

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

Accepted Answer

A) True 
 B)False

Question 20

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

A) True 
 B)False

Figure 8.2 -Refer to Figure 8.2.Suppose the firm is currently producing Q₂units.What happens if it expands output to Q₃units?

Firms in perfect competition are price takers because

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.At price P₂, the firm would

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.What is the firm's short-run profit or loss?

If a typical firm in a perfectly competitive industry is earning profits, then

An individual seller in perfect competition will not sell at a price lower than the market price because

Which of the following is not a characteristic of a perfect competition?

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

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?

What does an industry's long-run supply curve show?

In an increasing-cost industry, the long-run supply curve is upward sloping.

Figure 8.5 Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 8.5.The amount of the firm's fixed cost of production is

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

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

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

Figure 8.8 -Refer to Figure 8.8.What does the firm earn at the profit-maximising output level?

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 8: Firms in Perfectly Competitive Markets

Figure 8.2 -Refer to Figure 8.2.Suppose the firm is currently producing Q2 units.What happens if it expands output to Q3 units?

Firms in perfect competition are price takers because

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.At price P2, the firm would

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.What is the firm's short-run profit or loss?

If a typical firm in a perfectly competitive industry is earning profits, then

An individual seller in perfect competition will not sell at a price lower than the market price because

Which of the following is not a characteristic of a perfect competition?

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

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?

What does an industry's long-run supply curve show?

In an increasing-cost industry, the long-run supply curve is upward sloping.

Figure 8.5 Figure 8.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 8.5.The amount of the firm's fixed cost of production is

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

A perfectly competitive wheat farmer in a constant-cost industry produces 1000 bushels of wheat at a total cost of $50 000.The prevailing market price is $48.What will happen to the market price of wheat in the long run?

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

Figure 8.8 -Refer to Figure 8.8.What does the firm earn at the profit-maximising output level?

If a firm's fixed cost exceeds its total revenue, the firm should stop production by shutting down temporarily.

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Consumer Choice and Behavioural Economics

Technology Production and Costs

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Figure 8.2 -Refer to Figure 8.2.Suppose the firm is currently producing Q₂units.What happens if it expands output to Q₃units?

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.At price P₂, the firm would