Question 1

At the profit-maximising level of output for a perfectly competitive firm,

Accepted Answer

A) price equals marginal cost. 
B) average revenue equals average variable cost, and price equals marginal cost. 
C) marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D) price equals average revenue, and marginal cost equals average variable cost. 
A) price equals marginal cost. 
B) average revenue equals average variable cost, and price equals marginal cost. 
C) marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D) price equals average revenue, and marginal cost equals average variable cost.

Question 2

Which of the following statements is correct?

Accepted Answer

A) Economic profit takes into account all costs involved in producing a product. 
B) Accounting profit is not relevant in preparing the firm's financial statement. 
C) Economic profit always exceeds accounting profit. 
D) Accounting profit is the same as economic profit. 
A) Economic profit takes into account all costs involved in producing a product. 
B) Accounting profit is not relevant in preparing the firm's financial statement. 
C) Economic profit always exceeds accounting profit. 
D) Accounting profit is the same as economic profit.

Question 3

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Accepted Answer

A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve. 
A) a diagonal line that lies below the firm's demand curve. 
B) a line that intersects the firm's demand curve from below at its lowest point. 
C) a line that intersects the firm's average total cost curve from below at its lowest point. 
D) the same as the firm's demand curve.

Question 4

Figure 8.15  
-Use the figure above to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximising output?
d.What is total revenue at the profit-maximising output?
e.What is the total cost at the profit-maximising output?
f.What is the profit or loss at the profit-maximising output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium, what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium, what is the firm's profit maximising quantity?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a.The perfectly competitive firm is a pr

Question 5

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:   Suppose the current equilibrium price in the teapot market is $15.To maximise profit, how many teapots will Veronica produce, what price will she charge, and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand, ATC, AVC, MC, and MR curves, the price she is charging, the quantity she is producing, and the area representing her profit (or loss).
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Veronica will produce 5 teapot

Question 6

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 7

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800 000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Accepted Answer

A) earning an economic profit in the long run is extremely easy. 
B) earning an economic profit in the long run is extremely difficult. 
C) it is impossible to earn an economic profit in either the short run or the long run. 
D) economic profits are only earned in the long run. 
A) earning an economic profit in the long run is extremely easy. 
B) earning an economic profit in the long run is extremely difficult. 
C) it is impossible to earn an economic profit in either the short run or the long run. 
D) economic profits are only earned in the long run.

Question 8

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

Accepted Answer

A) Owners of perfectly competitive firms realise that their short-run profits are temporary.Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms.But eventually consumers realise that all of the firms sell virtually identical products. 
C) Firms from other countries are able to produce similar products at lower costs. 
D) Firms in these industries sell identical products. 
A) Owners of perfectly competitive firms realise that their short-run profits are temporary.Therefore, they either sell their businesses or develop other products that will earn short-run profits. 
B) Firms in perfectly competitive industries can use advertising in the short run to persuade consumers that their products are better than those of other firms.But eventually consumers realise that all of the firms sell virtually identical products. 
C) Firms from other countries are able to produce similar products at lower costs. 
D) Firms in these industries sell identical products.

Question 9

If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

When firms earn no economic profit but e

Question 10

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.If the market price is $20, the amount of the firm's profit is

Accepted Answer

A) $5400 
B) $6750 
C) $8100 
D) $16 200 
A) $5400 
B) $6750 
C) $8100 
D) $16 200

Question 11

Figure 8.2  
-Refer to Figure 8.2.What happens if the firm produces more than Q4 units?

Accepted Answer

A) Its profit increases. 
B) It incurs a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand. 
A) Its profit increases. 
B) It incurs a loss. 
C) Its total revenue is increasing faster than its total cost. 
D) It could make a profit or a loss depending on what happens to demand.

Question 12

If in the long run a firm makes zero profit, it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 13

Apple introduced its iPhone 3G in July 2008, and within a month sales had topped 3 million units.By April 2009, more than 25 000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

Accepted Answer

A) the ease at which a new firm can enter a competitive market is low. 
B) the ease at which a new firm can enter a competitive market is high. 
C) entry into the market is blocked. 
D) entry into the market is restricted in the short run, but becomes easier in the long run. 
A) the ease at which a new firm can enter a competitive market is low. 
B) the ease at which a new firm can enter a competitive market is high. 
C) entry into the market is blocked. 
D) entry into the market is restricted in the short run, but becomes easier in the long run.

Question 14

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 15

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 16

Figure 8.11  
-Refer to Figure 8.11.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.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 17

For a perfectly competitive firm, at profit maximisation

Accepted Answer

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

Question 18

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 and the firm maximises profit, what is the amount of the firm's profit or loss?

Accepted Answer

A) $0 (it breaks even) 
B) Loss of $1000 
C) Profit of $440 
D) Loss of $440 
A) $0 (it breaks even) 
B) Loss of $1000 
C) Profit of $440 
D) Loss of $440

Question 19

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

Accepted Answer

A) lose an amount equal to its fixed cost. 
B) make a profit. 
C) lose an amount less than fixed cost. 
D) make a normal profit. 
A) lose an amount equal to its fixed cost. 
B) make a profit. 
C) lose an amount less than fixed cost. 
D) make a normal profit.

Question 20

Figure 8.13  
-Refer to Figure 8.13.Assume that the medical screening industry is perfectly competitive and that some firms are incurring short-run losses.Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health.Which of the diagrams in the figure best describes what happens in the industry?

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

At the profit-maximising level of output for a perfectly competitive firm,

Which of the following statements is correct?

In a graph that illustrates a perfectly competitive firm, marginal revenue is

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

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800 000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

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.If the market price is $20, the amount of the firm's profit is

Figure 8.2 -Refer to Figure 8.2.What happens if the firm produces more than Q₄units?

If in the long run a firm makes zero profit, it should exit the industry.

Apple introduced its iPhone 3G in July 2008, and within a month sales had topped 3 million units.By April 2009, more than 25 000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium

For a perfectly competitive firm, at profit maximisation

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

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

At the profit-maximising level of output for a perfectly competitive firm,

Which of the following statements is correct?

In a graph that illustrates a perfectly competitive firm, marginal revenue is

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

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800 000 from this program.By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales.This example indicates that in a competitive market,

Firms in perfectly competitive industries are unable to control the prices of the products they sell and earn a profit in the long run because

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.If the market price is $20, the amount of the firm's profit is

Figure 8.2 -Refer to Figure 8.2.What happens if the firm produces more than Q4 units?

If in the long run a firm makes zero profit, it should exit the industry.

Apple introduced its iPhone 3G in July 2008, and within a month sales had topped 3 million units.By April 2009, more than 25 000 apps for the iPhone 3G were available in the iTunes store, an indication that in a competitive market,

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

In the short run, if a firm shuts down its maximum loss equals the amount of its fixed cost.

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium

For a perfectly competitive firm, at profit maximisation

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

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.What happens if the firm produces more than Q₄units?

Figure 8.11 -Refer to Figure 8.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium

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