Question 1

If the market price is $40, what is the average revenue of selling five units?

Accepted Answer

A) $8. 
B) $20. 
C) $40. 
D) $200. 
A) $8. 
B) $20. 
C) $40. 
D) $200.

Question 2

Figure 8.9  
-Refer to Figure 8.9.If this is a constant-cost industry, the market price in the long-run equilibrium is

Accepted Answer

A) $5 
B) $14 
C) $15 
D) $20 
A) $5 
B) $14 
C) $15 
D) $20

Question 3

If the long-run average cost curve is U-shaped, what is the optimal scale of production from society's viewpoint?

Accepted Answer

A) the minimum efficient scale. 
B) where maximum economic profit is earned by producers. 
C) where firm profit is large enough to finance research and development. 
D) one which guarantees economic profit. 
A) the minimum efficient scale. 
B) where maximum economic profit is earned by producers. 
C) where firm profit is large enough to finance research and development. 
D) one which guarantees economic profit.

Question 4

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

Accepted Answer

A) Selling product at a farmers' market was very profitable for farmers in the early 2000s.As result, many farmers sold their farms to larger firms. 
B) Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run. 
C) Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products. 
D) Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury. 
A) Selling product at a farmers' market was very profitable for farmers in the early 2000s.As result, many farmers sold their farms to larger firms. 
B) Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run. 
C) Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products. 
D) Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury.

Question 5

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

A) average total cost equals average revenue. 
B) average fixed cost is minimised. 
C) total revenue is equal to total cost. 
D) total profit is maximised. 
A) average total cost equals average revenue. 
B) average fixed cost is minimised. 
C) total revenue is equal to total cost. 
D) total profit is maximised.

Question 6

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.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximising output level?

Accepted Answer

A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down. 
A) It must fall. 
B) It must rise to offset the increased cost. 
C) It will remain the same. 
D) The firm will shut down.

Question 7

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Accepted Answer

A) should produce in the short run. 
B) is making short-run profits. 
C) should shut down in the short run. 
D) has covered its fixed cost. 
A) should produce in the short run. 
B) is making short-run profits. 
C) should shut down in the short run. 
D) has covered its fixed cost.

Question 8

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Accepted Answer

A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation. 
A) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short run profits because other firms would also innovate. 
B) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits. 
C) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. 
D) The firm will be able to increase its profits temporarily, but in the long run its profits will be eliminated as other firms copy the innovation.

Question 9

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

Accepted Answer

A) The equilibrium price is likely to increase, and profits are likely to remain unchanged. 
B) The equilibrium price is likely to remain unchanged, and profits are likely to increase. 
C) The equilibrium price is likely to decrease, and profits are likely to decrease. 
D) The equilibrium price is likely to increase, and profits are likely to increase. 
A) The equilibrium price is likely to increase, and profits are likely to remain unchanged. 
B) The equilibrium price is likely to remain unchanged, and profits are likely to increase. 
C) The equilibrium price is likely to decrease, and profits are likely to decrease. 
D) The equilibrium price is likely to increase, and profits are likely to increase.

Question 10

Both individual buyers and sellers in perfect competition

Accepted Answer

A) can influence the market price by their own individual actions. 
B) can influence the market price by joining with a few of their competitors. 
C) have to take the market price as a given. 
D) have the market price dictated to them by government. 
A) can influence the market price by their own individual actions. 
B) can influence the market price by joining with a few of their competitors. 
C) have to take the market price as a given. 
D) have the market price dictated to them by government.

Question 11

Figure 8.13  
-Refer to Figure 8.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in 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 12

Productive efficiency is

Accepted Answer

A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible 
A) a situation in which resources are allocated to their highest profit use 
B) a situation in which resources are allocated such that goods can be produced at their lowest possible average cost 
C) a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it 
D) a situation in which firms produce as much as possible

Question 13

The perfectly competitive market structure benefits consumers because

Accepted Answer

A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high quality goods at low prices. 
A) firms do not produce goods at the lowest possible price in the long run. 
B) firms are forced by competitive pressure to be as efficient as possible. 
C) firms add a much smaller markup over average cost than firms in any other type of market structure. 
D) firms produce high quality goods at low prices.

Question 14

Why are both buyers and sellers price takers in a perfectly competitive market?

Accepted Answer

A) Because the price is determined by government intervention and dictated to buyers and sellers. 
B) Because each buyer and seller knows it is illegal to conspire to affect price. 
C) Because both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) Because each buyer and seller is too small relative to others to independently affect the market price. 
A) Because the price is determined by government intervention and dictated to buyers and sellers. 
B) Because each buyer and seller knows it is illegal to conspire to affect price. 
C) Because both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D) Because each buyer and seller is too small relative to others to independently affect the market price.

Question 15

A firm will break even when

Accepted Answer

A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC. A) P = ATC. B) P > ATC. C) P < AVC. D) P = AVC.

Question 16

Fill in the columns in the following table and use the values in the table to determine the profit-maximising level of output.   __________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

@#IMG-DLM& The profit-maximisi

Question 17

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 18

If the market price is $40 in a perfectly competitive market, what is the marginal revenue from selling the fifth unit?

Accepted Answer

A) $8. 
B) $20. 
C) $40. 
D) $200. 
A) $8. 
B) $20. 
C) $40. 
D) $200.

Question 19

Maximising average profit is equivalent to maximising total profit.

Accepted Answer

A) True 
 B)False

Question 20

Figure 8.2  
-Refer to Figure 8.2.What is the amount of profit if the firm produces Q2 units?

Accepted Answer

A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q2. 
C) It is equal to the vertical distance g to Q2. 
D) It is equal to the vertical distance c to g multiplied by Q2 units. 
A) It is equal to the vertical distance c to g. 
B) It is equal to the vertical distance c to Q2. 
C) It is equal to the vertical distance g to Q2. 
D) It is equal to the vertical distance c to g multiplied by Q2 units.

If the market price is $40, what is the average revenue of selling five units?

Figure 8.9 -Refer to Figure 8.9.If this is a constant-cost industry, the market price in the long-run equilibrium is

If the long-run average cost curve is U-shaped, what is the optimal scale of production from society's viewpoint?

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

Producing where marginal revenue equals marginal cost is equivalent to producing where

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Assume the market for organic produce sold at farmers' markets is perfectly competitive.All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?

Both individual buyers and sellers in perfect competition

Figure 8.13 -Refer to Figure 8.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

Productive efficiency is

The perfectly competitive market structure benefits consumers because

Why are both buyers and sellers price takers in a perfectly competitive market?

A firm will break even when

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

If the market price is $40 in a perfectly competitive market, what is the marginal revenue from selling the fifth unit?

Maximising average profit is equivalent to maximising total profit.

Figure 8.2 -Refer to Figure 8.2.What is the amount of profit if the firm produces Q₂units?

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 the market price is $40, what is the average revenue of selling five units?

Figure 8.9 -Refer to Figure 8.9.If this is a constant-cost industry, the market price in the long-run equilibrium is

If the long-run average cost curve is U-shaped, what is the optimal scale of production from society's viewpoint?

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

Producing where marginal revenue equals marginal cost is equivalent to producing where

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm

Assume that the LCD and plasma television sets industry is perfectly competitive.Suppose a producer develops a successful innovation that enables it to lower its cost of production.What happens in the short run and in the long run?

Both individual buyers and sellers in perfect competition

Figure 8.13 -Refer to Figure 8.13.Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run.Which of the diagrams in the figure depicts what happens in the industry as it transitions to a long-run equilibrium?

Productive efficiency is

The perfectly competitive market structure benefits consumers because

Why are both buyers and sellers price takers in a perfectly competitive market?

A firm will break even when

Assume that the personal computer industry is perfectly competitive.The fact that the price of personal computers over the last decade has fallen despite increases in demand signifies that the industry is a decreasing-cost industry.

If the market price is $40 in a perfectly competitive market, what is the marginal revenue from selling the fifth unit?

Maximising average profit is equivalent to maximising total profit.

Figure 8.2 -Refer to Figure 8.2.What is the amount of profit if the firm produces Q2 units?

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 is the amount of profit if the firm produces Q₂units?