Question 1

What is implied by a very large number of small sellers who sell identical products?

Accepted Answer

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

Question 2

If price is equal to average variable cost, a perfectly competitive firm breaks even.

Accepted Answer

A) True 
 B)False

Question 3

What is a long-run supply curve? What does a long-run supply curve look like on a perfectly competitive market graph?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

A long run supply curve shows the relati

Question 4

The minimum point on the average variable cost curve is called the loss-minimising point.

Accepted Answer

A) True 
 B)False

Question 5

If a perfectly competitive firm's price is above its average total cost, the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even. 
A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even.

Question 6

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

Accepted Answer

A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even. 
A) is earning a profit. 
B) should shut down. 
C) is incurring a loss. 
D) is breaking even.

Question 7

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5000 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 8

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 P4, the firm would produce

Accepted Answer

A) Q3 units. 
B) Q4 units. 
C) Q5 units. 
D) Q6 units. 
A) Q3 units. 
B) Q4 units. 
C) Q5 units. 
D) Q6 units.

Question 9

Figure 8.4   Figure 8.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 8.4.If the market price is $30 and if the firm is producing output, the amount of its total variable cost is

Accepted Answer

A) $7200 
B) $6480 
C) $5400 
D) $3960 
A) $7200 
B) $6480 
C) $5400 
D) $3960

Question 10

Figure 8.2  
-Refer to Figure 8.2.At what output level does the firm break even?

Accepted Answer

A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units. 
A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 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

Which of the following is a characteristic of a monopoly?

Accepted Answer

A) It is easy for new firms to enter the market. 
B) There is only one seller in the market. 
C) The product is not unique. 
D) The firm has no control over price. 
A) It is easy for new firms to enter the market. 
B) There is only one seller in the market. 
C) The product is not unique. 
D) The firm has no control over price.

Question 13

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, to maximise its profit, the farm should

Accepted Answer

A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more 
A) determine what the total revenue and total cost of production are 
B) increase output 
C) decrease output 
D) lower its price to sell more

Question 14

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Accepted Answer

A) True 
 B)False

Question 15

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Table 8.3   Arnie sells basketballs in a perfectly competitive market.Table 8.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC)and marginal cost (MC).
-Refer to Table 8.3.What price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A) Price and profit cannot be determined from the information given. 
B) P = $12.50; profit = $52.50 
C) P = $12.50; profit = $22.50 
D) P = $20; profit = $75.00. 
A) Price and profit cannot be determined from the information given. 
B) P = $12.50; profit = $52.50 
C) P = $12.50; profit = $22.50 
D) P = $20; profit = $75.00.

Question 17

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph, use a supply and demand graph to illustrate the positive technological change.On the second graph, use demand, ATC, MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

On the first graph, supply shifts to the

Question 18

Of the following industries, which are perfectly competitive? For those that are not perfectly competitive, explain why.
a.Restaurants
b.Corn
c.University education
d.Local radio and television
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Accepted Answer

a.Restaurants are not perfectly competit

Question 19

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

Accepted Answer

A) Few firms in the market 
B) Identical products 
C) Ease of entry 
D) Blocked entry 
A) Few firms in the market 
B) Identical products 
C) Ease of entry 
D) Blocked entry

Question 20

A perfectly competitive firm has to charge the same price as every other firm in the market.Therefore, the firm

Accepted Answer

A) faces a perfectly inelastic demand curve. 
B) is not able to make a profit in the short run. 
C) is a price taker. 
D) faces a perfectly elastic supply curve. 
A) faces a perfectly inelastic demand curve. 
B) is not able to make a profit in the short run. 
C) is a price taker. 
D) faces a perfectly elastic supply curve.

What is implied by a very large number of small sellers who sell identical products?

If price is equal to average variable cost, a perfectly competitive firm breaks even.

The minimum point on the average variable cost curve is called the loss-minimising point.

If a perfectly competitive firm's price is above its average total cost, the firm

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

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 P₄, the firm would produce

Figure 8.4 Figure 8.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 8.4.If the market price is $30 and if the firm is producing output, the amount of its total variable cost is

Figure 8.2 -Refer to Figure 8.2.At what output level does the firm break even?

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.

Which of the following is a characteristic of a monopoly?

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, to maximise its profit, the farm should

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

A perfectly competitive firm has to charge the same price as every other firm in the market.Therefore, the firm

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

What is implied by a very large number of small sellers who sell identical products?

If price is equal to average variable cost, a perfectly competitive firm breaks even.

The minimum point on the average variable cost curve is called the loss-minimising point.

If a perfectly competitive firm's price is above its average total cost, the firm

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

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 P4, the firm would produce

Figure 8.4 Figure 8.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 8.4.If the market price is $30 and if the firm is producing output, the amount of its total variable cost is

Figure 8.2 -Refer to Figure 8.2.At what output level does the firm break even?

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.

Which of the following is a characteristic of a monopoly?

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, to maximise its profit, the farm should

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

What characteristic of a competitive market has made the 'long run pretty short' in the market for iPhone applications?

A perfectly competitive firm has to charge the same price as every other firm in the market.Therefore, the firm

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 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.At price P₄, the firm would produce