Question 1

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Accepted Answer

A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors. 
A) The firm's profits will increase. 
B) The firm's revenue will increase. 
C) The firm will not sell any output. 
D) The firm will sell more output than its competitors.

Question 2

Table 8.4   Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 8.4.If the market price is $45, how many units will the firm produce?

Accepted Answer

A) 60 units. 
B) 80 units. 
C) 100 units 
D) 120 units 
A) 60 units. 
B) 80 units. 
C) 100 units 
D) 120 units

Question 3

Which of the following is a characteristic of a firm in a perfectly competitive market?

Accepted Answer

A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded. 
A) The firm cannot make a profit in the short run because it is too small a part of the total market. 
B) The firm can make a profit in the long run but not in the short run. 
C) The firm can sell as much as it wants without having to lower its price. 
D) The firm must lower its price in order to increase quantity demanded.

Question 4

Figure 8.2  
-Refer to Figure 8.2.Why is the total revenue curve a ray from the origin?

Accepted Answer

A) Because revenue increases at an increasing rate 
B) Because revenue increases at a decreasing rate 
C) Because the firm can sell its product at a constant price 
D) Because the firm must lower its price to sell more 
A) Because revenue increases at an increasing rate 
B) Because revenue increases at a decreasing rate 
C) Because the firm can sell its product at a constant price 
D) Because the firm must lower its price to sell more

Question 5

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 6

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

Accepted Answer

A) True 
 B)False

Question 7

Jason, a high-school student, mows lawns for families in his neighbourhood.The going rate is $12 for each lawn-mowing service.Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service.If the market for lawn mowing services were perfectly competitive, what would happen if Jason raised his price?

Accepted Answer

A) He would lose some but not all his customers. 
B) Initially, his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price, then all others supplying the same service will also raise their prices. 
A) He would lose some but not all his customers. 
B) Initially, his customers might complain but over time they will come to accept the new rate. 
C) If Jason raises his price he would lose all his customers. 
D) If Jason raises his price, then all others supplying the same service will also raise their prices.

Question 8

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm

Accepted Answer

A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximised its profits or minimised its losses. 
A) added more to total cost than it added to total revenue. 
B) added an equal amount to both total revenue and total cost. 
C) added more to total revenue than it added to total cost. 
D) maximised its profits or minimised its losses.

Question 9

In perfect competition

Accepted Answer

A) the market demand curve and the individual's demand are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic. 
A) the market demand curve and the individual's demand are identical. 
B) the market demand curve is perfectly inelastic while demand for an individual seller's product is perfectly elastic. 
C) the market demand curve is perfectly elastic while demand for an individual seller's product is perfectly inelastic. 
D) the market demand curve is downward sloping while demand for an individual seller's product is perfectly elastic.

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 firm's profit-maximising output is

Accepted Answer

A) 750 units 
B) 1100 units 
C) 1350 units 
D) 1800 units 
A) 750 units 
B) 1100 units 
C) 1350 units 
D) 1800 units

Question 11

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

Accepted Answer

A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant. 
A) firms are breaking even. 
B) new firms are attracted to the industry. 
C) existing firms will exit the industry. 
D) market supply will remain constant.

Question 12

In the short run, a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

Accepted Answer

A) True 
 B)False

Question 13

To maximise profit, a perfectly competitive firm

Accepted Answer

A) should sell the quantity of output determined by the interaction between industry demand and supply. 
B) should sell the quantity of output that results in a value for total revenue that is equal to total cost. 
C) should produce the quantity of output that results in the greatest difference between total revenue and total cost. 
D) should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost. 
A) should sell the quantity of output determined by the interaction between industry demand and supply. 
B) should sell the quantity of output that results in a value for total revenue that is equal to total cost. 
C) should produce the quantity of output that results in the greatest difference between total revenue and total cost. 
D) should produce the quantity of output that results in the greatest difference between marginal revenue and marginal cost.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A perfectly competitive firm's marginal revenue curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Accepted Answer

A) Restaurants do not sell identical products. 
B) Restaurants compete in small market areas - neighbourhoods and cities - rather than in regional or national markets.Therefore, restaurants are not small relative to their market size. 
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning. 
A) Restaurants do not sell identical products. 
B) Restaurants compete in small market areas - neighbourhoods and cities - rather than in regional or national markets.Therefore, restaurants are not small relative to their market size. 
C) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. 
D) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning.

Question 17

Figure 8.14  
-Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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

Table 8.4   Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units.
-Refer to Table 8.4.If the market price is $45, the firm

Accepted Answer

A) will earn a profit of $3600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1040. 
A) will earn a profit of $3600. 
B) will suffer a loss of $200. 
C) will break even. 
D) will earn profit of $1040.

Question 19

Figure 8.12  
-Refer to Figure 8.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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 20

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Table 8.4 Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8.4.If the market price is $45, how many units will the firm produce?

Which of the following is a characteristic of a firm in a perfectly competitive market?

Figure 8.2 -Refer to Figure 8.2.Why is the total revenue curve a ray from the origin?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm

In perfect competition

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 firm's profit-maximising output is

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

In the short run, a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

To maximise profit, a perfectly competitive firm

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

A perfectly competitive firm's marginal revenue curve is downward sloping.

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Figure 8.14 -Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Table 8.4 Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8.4.If the market price is $45, the firm

Figure 8.12 -Refer to Figure 8.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

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

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Exam 8: Firms in Perfectly Competitive Markets

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21.Which of the following will happen?

Table 8.4 Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8.4.If the market price is $45, how many units will the firm produce?

Which of the following is a characteristic of a firm in a perfectly competitive market?

Figure 8.2 -Refer to Figure 8.2.Why is the total revenue curve a ray from the origin?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

An increase in a firm's fixed cost will not change the firm's profit-maximising output in the short run.

If, for the last bushel of apples produced and sold by an apple farm, marginal revenue exceeds marginal cost, then in producing that bushel the farm

In perfect competition

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 firm's profit-maximising output is

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

In the short run, a profit-maximising firm will shut down if its total revenue is greater than its variable costs.

To maximise profit, a perfectly competitive firm

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

A perfectly competitive firm's marginal revenue curve is downward sloping.

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms?

Figure 8.14 -Refer to Figure 8.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

Table 8.4 Table 8.4 shows the short-run cost data of a perfectly competitive firm.Assume that output can only be increased in batches of 20 units. -Refer to Table 8.4.If the market price is $45, the firm

Figure 8.12 -Refer to Figure 8.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

When firms exit a perfectly competitive industry, the market supply curve shifts to the left.

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