Question 1

If total revenue exceeds fixed cost, a firm

Accepted Answer

A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run, depending on whether total revenue covers variable cost. 
A) should produce in the short run. 
B) has covered its variable cost. 
C) is making short-run profits. 
D) may or may not produce in the short run, depending on whether total revenue covers variable cost.

Question 2

The supply curve of a perfectly competitive firm in the short run is

Accepted Answer

A) the firm's average variable cost curve. 
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve. 
A) the firm's average variable cost curve. 
B) the portion of the firm's marginal cost curve below the minimum point of the average variable cost curve. 
C) the portion of the firm's marginal cost curve above the minimum point of the average variable cost curve. 
D) the portion of the firm's marginal cost curve above the minimum point of the average total cost curve.

Question 3

A perfectly competitive firm will maximise its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

Accepted Answer

A) average total cost equals marginal revenue. 
B) marginal revenue equals marginal profit. 
C) marginal revenue equals marginal cost. 
D) marginal revenue equals average revenue. 
A) average total cost equals marginal revenue. 
B) marginal revenue equals marginal profit. 
C) marginal revenue equals marginal cost. 
D) marginal revenue equals average revenue.

Question 4

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.The immediate result of this event is

Accepted Answer

A) The market price falls and the typical firm suffers an economic loss. 
B) The market supply increases to offset the fall in demand. 
C) The typical firm's average total cost curve shifts downward. 
D) The typical firm's marginal cost curve shifts to the left. 
A) The market price falls and the typical firm suffers an economic loss. 
B) The market supply increases to offset the fall in demand. 
C) The typical firm's average total cost curve shifts downward. 
D) The typical firm's marginal cost curve shifts to the left.

Question 5

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 6

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency. 
A) productive efficiency. 
B) constant returns to scale. 
C) allocative efficiency. 
D) perfectly competitive efficiency.

Question 7

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A) Wheat production 
B) Steel production 
C) Electricity production 
D) Airplane production 
A) Wheat production 
B) Steel production 
C) Electricity production 
D) Airplane production

Question 8

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run, what happens to output level in the long run?

Accepted Answer

A) The firm's output falls. 
B) The firm's output increases. 
C) The firm produces the same output level. 
D) There is insufficient information to answer the question. 
A) The firm's output falls. 
B) The firm's output increases. 
C) The firm produces the same output level. 
D) There is insufficient information to answer the question.

Question 9

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

A) No, it should shut down because it is incurring a loss. 
B) Yes, it should continue to produce because its price exceeds its average fixed cost. 
C) Yes, it should continue to produce because it is minimising its loss. 
D) There is insufficient information to answer the question. 
A) No, it should shut down because it is incurring a loss. 
B) Yes, it should continue to produce because its price exceeds its average fixed cost. 
C) Yes, it should continue to produce because it is minimising its loss. 
D) There is insufficient information to answer the question.

Question 10

Figure 8.1  
-Refer to Figure 8.1.If the firm is producing 700 units, the amount of its profit or loss is

Accepted Answer

A) loss of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question. 
A) loss of $280 
B) loss equivalent to the area A 
C) profit equivalent to the area A 
D) There is insufficient information to answer the question.

Question 11

Which of the following can not be used to compute average profit?

Accepted Answer

A) Marginal profit minus marginal cost. 
B) Total profit divided by quantity. 
C) Average revenue minus average total cost 
D) Price minus average total cost. 
A) Marginal profit minus marginal cost. 
B) Total profit divided by quantity. 
C) Average revenue minus average total cost 
D) Price minus average total cost.

Question 12

How are sunk costs and fixed costs related?

Accepted Answer

A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other. 
A) They are not related in any way. 
B) Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C) In the short run they are equal to each other. 
D) In the long run they are equal to each other.

Question 13

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market 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 14

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Accepted Answer

A) exceeds his implicit costs. 
B) exceeds his nonmonetary opportunity costs. 
C) exceeds his variable costs. 
D) exceeds his marginal costs. 
A) exceeds his implicit costs. 
B) exceeds his nonmonetary opportunity costs. 
C) exceeds his variable costs. 
D) exceeds his marginal costs.

Question 15

Figure 8.14  
-Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

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 16

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 17

Figure 8.7   Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 8.7.Identify the firm's short-run supply curve.

Accepted Answer

A) the marginal cost curve 
B) the marginal cost curve from a and above 
C) the marginal cost curve from b and above 
D) the marginal cost curve from d and above 
A) the marginal cost curve 
B) the marginal cost curve from a and above 
C) the marginal cost curve from b and above 
D) the marginal cost curve from d and above

Question 18

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

Accepted Answer

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

Question 19

A perfectly competitive firm's short-run supply curve is

Accepted Answer

A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost. 
A) upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. 
B) upward sloping and is the portion of the marginal cost curve that lies above the average variable cost curve. 
C) perfectly elastic at the market price. 
D) horizontal at the minimum average total cost.

Question 20

Perfectly competitive industries tend to produce low-priced, low-technology products.

Accepted Answer

A) True 
 B)False

If total revenue exceeds fixed cost, a firm

The supply curve of a perfectly competitive firm in the short run is

A perfectly competitive firm will maximise its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.The immediate result of this event is

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Which of the following is the best example of a perfectly competitive industry?

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run, what happens to output level in the long run?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Figure 8.1 -Refer to Figure 8.1.If the firm is producing 700 units, the amount of its profit or loss is

Which of the following can not be used to compute average profit?

How are sunk costs and fixed costs related?

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Figure 8.14 -Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.Identify the firm's short-run supply curve.

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

A perfectly competitive firm's short-run supply curve is

Perfectly competitive industries tend to produce low-priced, low-technology products.

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

If total revenue exceeds fixed cost, a firm

The supply curve of a perfectly competitive firm in the short run is

A perfectly competitive firm will maximise its profit at the rate of output where the vertical distance between its total revenue and total cost is the largest.This is the same rate of output where

Assume that a perfectly competitive market is in long-run equilibrium.Suppose as a result of a health hazard associated with the industry's product, demand decreases drastically.The immediate result of this event is

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Which of the following is the best example of a perfectly competitive industry?

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000.The prevailing market price is $48.Assuming that this firm continues to produce in the long run, what happens to output level in the long run?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Figure 8.1 -Refer to Figure 8.1.If the firm is producing 700 units, the amount of its profit or loss is

Which of the following can not be used to compute average profit?

How are sunk costs and fixed costs related?

If, as a perfectly competitive industry expands, it can supply larger quantities at the same long-run market price, it is

Marty's Bird House suffers a short-run loss.Marty can reduce his loss below the amount of his total fixed costs by continuing to produce if his revenue

Figure 8.14 -Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market in which some firms are experiencing short-run losses, and consumers are displaying an increased preference for organic produce?

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves.This suggests that the microwave industry is a decreasing-cost industry.

Figure 8.7 Figure 8.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 8.7.Identify the firm's short-run supply curve.

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

A perfectly competitive firm's short-run supply curve is

Perfectly competitive industries tend to produce low-priced, low-technology products.

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