Question 1

A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

Accepted Answer

A)  minimizes the per-unit cost of production. 
B)  is expected to maximize total revenue. 
C)  maximizes the amount by which total revenue exceeds total cost. 
D)  brings average total cost and price into equality. 
A)  minimizes the per-unit cost of production. 
B)  is expected to maximize total revenue. 
C)  maximizes the amount by which total revenue exceeds total cost. 
D)  brings average total cost and price into equality.

Question 2

Whenever marginal revenue is greater than marginal cost,a profit-maximizing firm should reduce its output.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a characteristic of perfect competition?

Accepted Answer

A)  substantial barriers to entry 
B)  differentiated products 
C)  few sellers 
D)  none of the above 
A)  substantial barriers to entry 
B)  differentiated products 
C)  few sellers 
D)  none of the above

Question 4

In a perfectly competitive industry,influence over price is exerted by:

Accepted Answer

A)  individual sellers. 
B)  individual buyers. 
C)  the largest firms. 
D)  the forces of market supply and demand. 
A)  individual sellers. 
B)  individual buyers. 
C)  the largest firms. 
D)  the forces of market supply and demand.

Question 5

Which of the following is false about the long run?

Accepted Answer

A)  The long-run equilibrium output for a firm in perfect competition occurs at the lowest point on the average total cost curve. 
B)  The shape of the long-run supply curve depends on the extent to which input costs change when there is entry or exit of firms in the industry. 
C)  In a constant-cost industry, the prices of inputs do not change as output is expanded. 
D)  In an increasing-cost industry, the cost curves of the individual firms rise as the total output of the industry decreases. 
A)  The long-run equilibrium output for a firm in perfect competition occurs at the lowest point on the average total cost curve. 
B)  The shape of the long-run supply curve depends on the extent to which input costs change when there is entry or exit of firms in the industry. 
C)  In a constant-cost industry, the prices of inputs do not change as output is expanded. 
D)  In an increasing-cost industry, the cost curves of the individual firms rise as the total output of the industry decreases.

Question 6

Firms will continue to enter a competitive industry until:

Accepted Answer

A)  the supply curve is vertical. 
B)  the market price falls below average variable cost. 
C)  any economic profits have been competed away. 
D)  all resources are fully employed. 
A)  the supply curve is vertical. 
B)  the market price falls below average variable cost. 
C)  any economic profits have been competed away. 
D)  all resources are fully employed.

Question 7

Exhibit 12-6   Refer to Exhibit 12-6.What would be the area of total cost if the firm maximized profits/minimized losses?

Accepted Answer

A)  OqAP. 
B)  OP1Bq. 
C)  PAB P1. 
D)  none of the above 
A)  OqAP. 
B)  OP1Bq. 
C)  PAB P1. 
D)  none of the above

Question 8

Darlene runs a fruit and vegetable stand in a medium-sized community where there are many such stands.Her weekly total revenue equals $3,500.Her weekly total cost of running the stand equals $3,500,consisting of $2,500 of variable costs and $1,000 of fixed costs.An economist would likely advise Darlene to:

Accepted Answer

A)  shut down as quickly as possible because the stand is generating losses. 
B)  keep the stand open because it is generating a normal profit. 
C)  keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D)  keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs. 
A)  shut down as quickly as possible because the stand is generating losses. 
B)  keep the stand open because it is generating a normal profit. 
C)  keep the stand open for a while longer because she is covering all of her variable costs and some of her fixed costs. 
D)  keep the stand open for a while longer because she is covering all of her fixed costs and some of her variable costs.

Question 9

Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm.   Refer to Exhibit 12-7.The firm depicted above should:

Accepted Answer

A)  shut down in order to minimize losses. 
B)  keep operating in the short run in order to minimize losses, since price exceeds average variable cost. 
C)  keep operating in the short run in order to minimize losses, since price exceeds average total cost. 
D)  decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output. 
A)  shut down in order to minimize losses. 
B)  keep operating in the short run in order to minimize losses, since price exceeds average variable cost. 
C)  keep operating in the short run in order to minimize losses, since price exceeds average total cost. 
D)  decrease output to 30 units, since marginal revenue exceeds marginal cost by the greatest dollar amount at that level of output.

Question 10

Exhibit 12-1   Refer to Exhibit 12-1.In Graph A,the market demand has increased from d0 to d1,and as a result:

Accepted Answer

A)  both the market price and the price of the price-taking firm have risen to $6. 
B)  both the market price and the price of the price-taking firm have fallen to $5. 
C)  the quantity of goods transacted in the market has fallen from Q1 to Q0. 
D)  at the new equilibrium price, the firm will be unable to sell any of its output. 
A)  both the market price and the price of the price-taking firm have risen to $6. 
B)  both the market price and the price of the price-taking firm have fallen to $5. 
C)  the quantity of goods transacted in the market has fallen from Q1 to Q0. 
D)  at the new equilibrium price, the firm will be unable to sell any of its output.

Question 11

Say that Japanese firms commit to avoid laying off their employees when demand for their products is low,but American firms often lay off workers when demand is low.As a result,ceteris paribus,we would expect Japanese firms to:

Accepted Answer

A)  face more elastic demand curves than American firms. 
B)  have relatively greater variable costs than American firms. 
C)  continue to produce at some prices at which American firms would shut down. 
D)  shut down at prices at which American firms would continue to operate. 
A)  face more elastic demand curves than American firms. 
B)  have relatively greater variable costs than American firms. 
C)  continue to produce at some prices at which American firms would shut down. 
D)  shut down at prices at which American firms would continue to operate.

Question 12

Exhibit 12-10
The following table shows how the total cost of producing canisters of peanuts varies with output and capital in the long run in a perfectly competitive industry.
   Refer to Exhibit 12-10.What levels of capital (K=1,K=2,or K=3)would the firm choose in the long run for producing three canisters and five canisters of peanuts per hour,respectively?

Accepted Answer

The firm would choose a level of capital

Question 13

Which market structure is characterized by many sellers,easy entry,and homogeneous products?

Accepted Answer

A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly 
A)  perfect competition 
B)  monopolistic competition 
C)  oligopoly 
D)  monopoly

Question 14

Exhibit 12-2   Refer to Exhibit 12-2.Suppose the market price equals $88 and the firm is currently producing 600 units of output.In this situation,the firm:

Accepted Answer

A)  is maximizing profit. 
B)  should increase production of output in order to maximize profit. 
C)  should decrease production of output in order to maximize profit. 
D)  should shut down in order to minimize economic losses. 
A)  is maximizing profit. 
B)  should increase production of output in order to maximize profit. 
C)  should decrease production of output in order to maximize profit. 
D)  should shut down in order to minimize economic losses.

Question 15

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost,it should:

Accepted Answer

A)  reduce output, but continue producing in the short run. 
B)  increase output. 
C)  shut down. 
D)  not alter its production level since it is earning a profit. 
A)  reduce output, but continue producing in the short run. 
B)  increase output. 
C)  shut down. 
D)  not alter its production level since it is earning a profit.

Question 16

Exhibit 12-10
The following table shows how the total cost of producing canisters of peanuts varies with output and capital in the long run in a perfectly competitive industry.
   Refer to Exhibit 12-10.If firms can freely enter or exit the industry and face the cost structures specified,what is the likely long-run price of a canister of peanuts?

Accepted Answer

Price would be 70 cents per ca

Question 17

Assume that the equilibrium price in a perfectly competitive industry is $4.25.If a firm in this industry produced and sold 10 units with an average total cost of $5.00,what would be the result would be:

Accepted Answer

A)  a profit of $0.75 
B)  a profit of $7.50 
C)  a loss of $0.75 
D)  a loss of $7.50 
A)  a profit of $0.75 
B)  a profit of $7.50 
C)  a loss of $0.75 
D)  a loss of $7.50

Question 18

Assume that a firm's total revenue is less than its total cost for the level of output it is producing.In the short run,this firm should:

Accepted Answer

A)  expand output. 
B)  contract output. 
C)  shut down. 
D)  There is not enough information to answer the question. 
A)  expand output. 
B)  contract output. 
C)  shut down. 
D)  There is not enough information to answer the question.

Question 19

In the long run,a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

Accepted Answer

A) True 
 B)False

Question 20

Why do short-run profits in a perfectly competitive industry tend to disappear over time?

Accepted Answer

Economic profits tend to exist only in t

Exam 12: Firms in Perfectly Competitive Markets

A profit-maximizing firm in a perfectly competitive market will always produce a quantity of output that:

Whenever marginal revenue is greater than marginal cost,a profit-maximizing firm should reduce its output.

Which of the following is a characteristic of perfect competition?

In a perfectly competitive industry,influence over price is exerted by:

Which of the following is false about the long run?

Firms will continue to enter a competitive industry until:

Exhibit 12-6 Refer to Exhibit 12-6.What would be the area of total cost if the firm maximized profits/minimized losses?

Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm. Refer to Exhibit 12-7.The firm depicted above should:

Exhibit 12-1 Refer to Exhibit 12-1.In Graph A,the market demand has increased from d0 to d1,and as a result:

Say that Japanese firms commit to avoid laying off their employees when demand for their products is low,but American firms often lay off workers when demand is low.As a result,ceteris paribus,we would expect Japanese firms to:

Which market structure is characterized by many sellers,easy entry,and homogeneous products?

Exhibit 12-2 Refer to Exhibit 12-2.Suppose the market price equals $88 and the firm is currently producing 600 units of output.In this situation,the firm:

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost,it should:

Assume that the equilibrium price in a perfectly competitive industry is $4.25.If a firm in this industry produced and sold 10 units with an average total cost of $5.00,what would be the result would be:

Assume that a firm's total revenue is less than its total cost for the level of output it is producing.In the short run,this firm should:

In the long run,a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

Why do short-run profits in a perfectly competitive industry tend to disappear over time?

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 12-1 Refer to Exhibit 12-1.In Graph A,the market demand has increased from d₀ to d₁,and as a result: