Question 1

Figure 8.8  
-Refer to Figure 8.8.What is total revenue at the profit-maximising level of output?

Accepted Answer

A) $1200. 
B) $2500. 
C) $4800. 
D) $6000. 
A) $1200. 
B) $2500. 
C) $4800. 
D) $6000.

Question 2

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

Accepted Answer

A) a constant-cost industry 
B) an increasing-cost industry 
C) a decreasing-cost industry 
D) a fixed-cost industry 
A) a constant-cost industry 
B) an increasing-cost industry 
C) a decreasing-cost industry 
D) a fixed-cost industry

Question 3

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.

Question 4

How are a wheat farmer and a firm similar in a perfectly competitive market?

Accepted Answer

A) Both face vertical demand curves. 
B) Both have to lower their prices if a rival firm lowers its price. 
C) Both face horizontal demand curves. 
D) Both will earn an economic profit if their total revenue equals their total cost. 
A) Both face vertical demand curves. 
B) Both have to lower their prices if a rival firm lowers its price. 
C) Both face horizontal demand curves. 
D) Both will earn an economic profit if their total revenue equals their total cost.

Question 5

At the profit-maximising level of output for a perfectly competitive firm, price equals marginal cost.Which of the following is also true?

Accepted Answer

A) The difference between total revenue and total cost is the greatest. 
B) Total revenue equals total cost. 
C) Average revenue equals average total cost. 
D) Marginal profit equals marginal cost. 
A) The difference between total revenue and total cost is the greatest. 
B) Total revenue equals total cost. 
C) Average revenue equals average total cost. 
D) Marginal profit equals marginal cost.

Question 6

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it is

Accepted Answer

A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry. 
A) a constant-cost industry. 
B) an increasing-cost industry. 
C) a decreasing-cost industry. 
D) a fixed-cost industry.

Question 7

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 8

If a firm shuts down in the short run,

Accepted Answer

A) its loss equals zero. 
B) its loss equals its fixed cost. 
C) it makes zero economic profit. 
D) its total revenue is not large enough to cover its fixed cost. 
A) its loss equals zero. 
B) its loss equals its fixed cost. 
C) it makes zero economic profit. 
D) its total revenue is not large enough to cover its fixed cost.

Question 9

Table 8.1   Table 8.1 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 8.1.If the market price of each camera case is $8, the profit-maximising quantity is

Accepted Answer

A) 300 units 
B) 400 units 
C) 500 units 
D) 600 units 
A) 300 units 
B) 400 units 
C) 500 units 
D) 600 units

Question 10

In analysing 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 11

Figure 8.9  
-Refer to Figure 8.9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

Accepted Answer

A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant. 
A) there will be fewer firms in the industry and total industry output decreases. 
B) there will be more firms in the industry and total industry output increases. 
C) there will be fewer firms in the industry but total industry output increases. 
D) there will be more firms in the industry and total industry output remains constant.

Question 12

Figure 8.1  
-Refer to Figure 8.1.If the firm is producing 200 units,

Accepted Answer

A) it breaks even. 
B) it is incurring a loss. 
C) it should cut back its output to maximise profit. 
D) it should increase its output to maximise profit. 
A) it breaks even. 
B) it is incurring a loss. 
C) it should cut back its output to maximise profit. 
D) it should increase its output to maximise profit.

Question 13

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 P3, 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 14

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 15

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 16

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Accepted Answer

A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even. 
A) the industry supply will not change. 
B) new firms are attracted to the industry. 
C) some existing firms will exit the industry. 
D) firms are breaking even.

Question 17

Why are individual buyers and sellers in perfect competition called price takers?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

They are called price takers b

Question 18

Figure 8.6  
-Refer to Figure 8.6.Suppose the market price is $120.Which of the following is true?

Accepted Answer

A) The firm earns a profit equal to the area A. 
B) The firm earns a profit equal to the area A + B. 
C) The firm suffers a loss equal to the area A. 
D) The firm will break even. 
A) The firm earns a profit equal to the area A. 
B) The firm earns a profit equal to the area A + B. 
C) The firm suffers a loss equal to the area A. 
D) The firm will break even.

Question 19

In a perfectly competitive industry, in the long-run equilibrium

Accepted Answer

A) the typical firm is producing at the output where its long-run average total cost is not minimised. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximising its revenue. 
A) the typical firm is producing at the output where its long-run average total cost is not minimised. 
B) the typical firm is earning an accounting profit greater than its implicit costs. 
C) the typical firm earns zero profit. 
D) the typical firm is maximising its revenue.

Question 20

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 figure shows the cost structure of a firm in a perfectly competitive market.If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens to its profit-maximising output level?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else. 
A) It increases. 
B) It decreases. 
C) It remains the same. 
D) It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Figure 8.8 -Refer to Figure 8.8.What is total revenue at the profit-maximising level of output?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

What is allocative efficiency?

How are a wheat farmer and a firm similar in a perfectly competitive market?

At the profit-maximising level of output for a perfectly competitive firm, price equals marginal cost.Which of the following is also true?

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it 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.

If a firm shuts down in the short run,

Table 8.1 Table 8.1 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 8.1.If the market price of each camera case is $8, the profit-maximising quantity is

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

Figure 8.9 -Refer to Figure 8.9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

Figure 8.1 -Refer to Figure 8.1.If the firm is producing 200 units,

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 P₃, the firm would

A constant-cost industry is an industry in which

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.

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Why are individual buyers and sellers in perfect competition called price takers? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 8.6 -Refer to Figure 8.6.Suppose the market price is $120.Which of the following is true?

In a perfectly competitive industry, in the long-run equilibrium

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 8.8 -Refer to Figure 8.8.What is total revenue at the profit-maximising level of output?

Assume that the tuna fishing industry is perfectly competitive.Which of the following best characterises the industry if, as demand for tuna increases, fishing boats have to go farther into the ocean to harvest tuna?

What is allocative efficiency?

How are a wheat farmer and a firm similar in a perfectly competitive market?

At the profit-maximising level of output for a perfectly competitive firm, price equals marginal cost.Which of the following is also true?

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it 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.

If a firm shuts down in the short run,

Table 8.1 Table 8.1 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 8.1.If the market price of each camera case is $8, the profit-maximising quantity is

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

Figure 8.9 -Refer to Figure 8.9.Suppose the prevailing price is $20 and the firm is currently producing 1350 units.In the long-run equilibrium

Figure 8.1 -Refer to Figure 8.1.If the firm is producing 200 units,

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 P3, the firm would

A constant-cost industry is an industry in which

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.

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Why are individual buyers and sellers in perfect competition called price takers? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 8.6 -Refer to Figure 8.6.Suppose the market price is $120.Which of the following is true?

In a perfectly competitive industry, in the long-run equilibrium

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 P₃, the firm would