Question 1

Exhibit 12-3   Refer to Exhibit 12-3.Graph A exhibits a price-taking firm:

Accepted Answer

A)  experiencing an economic loss of $80. 
B)  making an economic profit of $80. 
C)  making an economic profit of $400. 
D)  experiencing an economic loss of $400. 
A)  experiencing an economic loss of $80. 
B)  making an economic profit of $80. 
C)  making an economic profit of $400. 
D)  experiencing an economic loss of $400.

Question 2

In a perfectly competitive market,in response to a permanent decrease in demand:

Accepted Answer

A)  the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B)  the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C)  the short run equilibrium price will be the same as than the eventual long run equilibrium price. 
D)  we cannot know whether the short run equilibrium price will be below the eventual long run equilibrium price. 
A)  the short run equilibrium price will be higher than the eventual long run equilibrium price. 
B)  the short run equilibrium price will be lower than the eventual long run equilibrium price. 
C)  the short run equilibrium price will be the same as than the eventual long run equilibrium price. 
D)  we cannot know whether the short run equilibrium price will be below the eventual long run equilibrium price.

Question 3

Beginning from a long run equilibrium in a competitive industry,if there is a substantial,permanent increase in demand for industry output:

Accepted Answer

A)  firms will enter the industry, the quantity produced will rise, and prices will end up lower than their initial long run equilibrium level. 
B)  firms will enter the industry, the quantity produced will rise, and prices will end up higher than their initial long run equilibrium level. 
C)  firms will enter the industry, the quantity produced will rise, and prices will end up at the same level as their initial long run equilibrium level. 
D)  firms will enter the industry, the quantity produced will rise, and but without more information, we cannot know if prices will end up higher than their initial long run equilibrium level. 
A)  firms will enter the industry, the quantity produced will rise, and prices will end up lower than their initial long run equilibrium level. 
B)  firms will enter the industry, the quantity produced will rise, and prices will end up higher than their initial long run equilibrium level. 
C)  firms will enter the industry, the quantity produced will rise, and prices will end up at the same level as their initial long run equilibrium level. 
D)  firms will enter the industry, the quantity produced will rise, and but without more information, we cannot know if prices will end up higher than their initial long run equilibrium level.

Question 4

When perfectly competitive firms are earning zero accounting profits,

Accepted Answer

A)  we would expect entry into the industry. 
B)  we would expect stability in the industry, since it is in long run equilibrium. 
C)  we would expect exit from the industry. 
D)  we would expect none of the above. 
A)  we would expect entry into the industry. 
B)  we would expect stability in the industry, since it is in long run equilibrium. 
C)  we would expect exit from the industry. 
D)  we would expect none of the above.

Question 5

In the short run,a perfectly competitive firm can earn:

Accepted Answer

A)  positive economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  any of the above. 
A)  positive economic profits. 
B)  zero economic profits. 
C)  negative economic profits. 
D)  any of the above.

Question 6

If a competitive firm is operating in short run equilibrium and then its fixed costs fall by 40 percent,it should:

Accepted Answer

A)  use more labor and less capital in current production. 
B)  not change its output. 
C)  increase its output. 
D)  decrease its output. 
A)  use more labor and less capital in current production. 
B)  not change its output. 
C)  increase its output. 
D)  decrease its output.

Question 7

The perfectly competitive model assumes that:

Accepted Answer

A)  individual sellers can influence the market price. 
B)  sellers can increase their total revenue by raising prices. 
C)  firms can enter and exit the industry with relative ease. 
D)  firms compete by varying a product's quality rather than a product's price. 
A)  individual sellers can influence the market price. 
B)  sellers can increase their total revenue by raising prices. 
C)  firms can enter and exit the industry with relative ease. 
D)  firms compete by varying a product's quality rather than a product's price.

Question 8

A price-taking firm will tend to expand its output as long as price exceeds average variable cost and:

Accepted Answer

A)  its marginal revenue is positive. 
B)  its marginal revenue is greater than the market price. 
C)  its marginal revenue is less than the market price. 
D)  its marginal cost is less than the market price. 
A)  its marginal revenue is positive. 
B)  its marginal revenue is greater than the market price. 
C)  its marginal revenue is less than the market price. 
D)  its marginal cost is less than the market price.

Question 9

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output,marginal cost is $180 and increasing,and average variable cost is $160.Assuming it wants to maximize its profits,it should:

Accepted Answer

A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down. 
A)  increase output. 
B)  decrease output, but not shut down. 
C)  maintain its current output rate. 
D)  shut down.

Question 10

During a period when new entrants are being attracted to an industry,we would expect that:

Accepted Answer

A)  economic profits are positive. 
B)  as a result, economic profits are falling. 
C)  as a result, economic profits are rising. 
D)  both (a) and (b) are true. 
A)  economic profits are positive. 
B)  as a result, economic profits are falling. 
C)  as a result, economic profits are rising. 
D)  both (a) and (b) are true.

Question 11

Exhibit 12-9   Refer to Exhibit 12-9.When the market price for lawn care services decreases from P1 to P0,the firm will most likely:

Accepted Answer

A)  continue providing q1 units of services. 
B)  decrease its production of services. 
C)  leave the industry. 
D)  increase its production of services. 
A)  continue providing q1 units of services. 
B)  decrease its production of services. 
C)  leave the industry. 
D)  increase its production of services.

Question 12

The graph represents a price-taking firm producing q1 units of output.Is the firm making a profit,experiencing a loss,or earning a normal profit? Should the firm increase output,decrease output,or shut down? Explain.

Accepted Answer

@#IMG-DLM& This price-taking firm is operating at

Question 13

Exhibit 12-3   Refer to Exhibit 12-3.Graph B exhibits a price-taking firm:

Accepted Answer

A)  which will lose money when the market price equals $4.90. 
B)  which will make an economic profit when the market price equals $4.90. 
C)  which will break even when the market price equals $4.90. 
D)  which will shut down when the market price equals $4.90. 
A)  which will lose money when the market price equals $4.90. 
B)  which will make an economic profit when the market price equals $4.90. 
C)  which will break even when the market price equals $4.90. 
D)  which will shut down when the market price equals $4.90.

Question 14

Which of the following is true?

Accepted Answer

A)  The objective of the firm is to maximize profits, by producing the amount that equates total revenue and total cost. 
B)  The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average total cost. 
C)  The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average variable cost. 
D)  The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost. 
A)  The objective of the firm is to maximize profits, by producing the amount that equates total revenue and total cost. 
B)  The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average total cost. 
C)  The objective of the firm is to maximize profits, by producing the amount that equates average revenue and average variable cost. 
D)  The objective of the firm is to maximize profits, by producing the amount that equates marginal revenue and marginal cost.

Question 15

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market,then the long-run market supply curve for the industry will most likely be:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping. 
A)  vertical. 
B)  horizontal. 
C)  upward sloping. 
D)  downward sloping.

Question 16

When perfectly competitive firms in an industry are earning positive economic profits,

Accepted Answer

A)  we would expect entry into the industry. 
B)  we would expect stability in the industry, since it is in long run equilibrium. 
C)  we would expect exit from the industry. 
D)  we do not know whether there would tend to be entry, exit, or stability in the industry. 
A)  we would expect entry into the industry. 
B)  we would expect stability in the industry, since it is in long run equilibrium. 
C)  we would expect exit from the industry. 
D)  we do not know whether there would tend to be entry, exit, or stability in the industry.

Question 17

If input costs remain the same as industry output expands,what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

Accepted Answer

A)  There will be more firms but the price will remain the same. 
B)  There will be fewer firms but the price will remain the same. 
C)  There will be more firms and the price will increase. 
D)  There will be fewer firms and the price will decrease. 
A)  There will be more firms but the price will remain the same. 
B)  There will be fewer firms but the price will remain the same. 
C)  There will be more firms and the price will increase. 
D)  There will be fewer firms and the price will decrease.

Question 18

A profit-maximizing firm that is operating in the short run will sell an additional unit of output as long as:

Accepted Answer

A)  as doing so reduces the firm's per-unit costs. 
B)  doing so reduces the firm's marginal costs. 
C)  doing so adds more to revenue than it adds to cost. 
D)  there is additional plant capacity with which to produce. 
A)  as doing so reduces the firm's per-unit costs. 
B)  doing so reduces the firm's marginal costs. 
C)  doing so adds more to revenue than it adds to cost. 
D)  there is additional plant capacity with which to produce.

Question 19

In the short run,a perfectly competitive firm will maximize profit by producing where:

Accepted Answer

A)  MC = MR. 
B)  MC = ATC. 
C)  ATC = MR. 
D)  AVC = MC. 
A)  MC = MR. 
B)  MC = ATC. 
C)  ATC = MR. 
D)  AVC = MC.

Question 20

If new entry occurs in a perfectly competitive industry,the demand curve for each existing firm will:

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  shift right. 
D)  shift left. 
A)  shift up. 
B)  shift down. 
C)  shift right. 
D)  shift left.

Exam 12: Firms in Perfectly Competitive Markets

Exhibit 12-3 Refer to Exhibit 12-3.Graph A exhibits a price-taking firm:

In a perfectly competitive market,in response to a permanent decrease in demand:

Beginning from a long run equilibrium in a competitive industry,if there is a substantial,permanent increase in demand for industry output:

When perfectly competitive firms are earning zero accounting profits,

In the short run,a perfectly competitive firm can earn:

If a competitive firm is operating in short run equilibrium and then its fixed costs fall by 40 percent,it should:

The perfectly competitive model assumes that:

A price-taking firm will tend to expand its output as long as price exceeds average variable cost and:

Assume a perfectly competitive firm sells its output for $150 per unit.At its current 2,000 units of output,marginal cost is $180 and increasing,and average variable cost is $160.Assuming it wants to maximize its profits,it should:

During a period when new entrants are being attracted to an industry,we would expect that:

Exhibit 12-9 Refer to Exhibit 12-9.When the market price for lawn care services decreases from P1 to P0,the firm will most likely:

The graph represents a price-taking firm producing q1 units of output.Is the firm making a profit,experiencing a loss,or earning a normal profit? Should the firm increase output,decrease output,or shut down? Explain.

Exhibit 12-3 Refer to Exhibit 12-3.Graph B exhibits a price-taking firm:

Which of the following is true?

If a perfectly competitive industry uses a large proportion of the available inputs in a resource market,then the long-run market supply curve for the industry will most likely be:

When perfectly competitive firms in an industry are earning positive economic profits,

If input costs remain the same as industry output expands,what would you expect to be the long-run impact of an increase in demand on an industry currently in long-run equilibrium?

A profit-maximizing firm that is operating in the short run will sell an additional unit of output as long as:

In the short run,a perfectly competitive firm will maximize profit by producing where:

If new entry occurs in a perfectly competitive industry,the demand curve for each existing firm will:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

Exhibit 12-9 Refer to Exhibit 12-9.When the market price for lawn care services decreases from P₁ to P₀,the firm will most likely:

The graph represents a price-taking firm producing q₁ units of output.Is the firm making a profit,experiencing a loss,or earning a normal profit? Should the firm increase output,decrease output,or shut down? Explain.