Question 1

Firms that are price takers

Accepted Answer

A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price. 
A)  must lower their prices to increase sales. 
B)  are able to sell a fixed quantity of output at the market price. 
C)  can raise their prices as a result of a successful advertising campaign. 
D)  are able to sell all their output at the market price.

Question 2

-Refer to Figure 8-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity. Identify the area that represents the loss.

Accepted Answer

A)  P2 deP1 
B)  P3cbP1 
C)  P3caP0 
D)  0P1 bQ1 
A)  P2 deP1 
B)  P3cbP1 
C)  P3caP0 
D)  0P1 bQ1

Question 3

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Accepted Answer

A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising price 
A)  shutting down 
B)  reducing production 
C)  reducing the use of variable factors 
D)  raising price

Question 4

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

Accepted Answer

A)  Its economic profit will be zero. 
B)  It will minimise average total cost. 
C)  It will charge a price equal to marginal cost. 
D)  Marginal cost will be minimised. 
A)  Its economic profit will be zero. 
B)  It will minimise average total cost. 
C)  It will charge a price equal to marginal cost. 
D)  Marginal cost will be minimised.

Question 5

-Refer to Figure 8-5. The figure shows the cost structure of a firm in a perfectly competitive market. If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens to its profit-maximising output level?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  It remains the same. 
D)  It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else. 
A)  It increases. 
B)  It decreases. 
C)  It remains the same. 
D)  It could increase, decrease or remain constant, depending on whether the firm is able to cut costs somewhere else.

Question 6

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses. 
A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses.

Question 7

An individual seller in perfect competition will not sell at a price lower than the market price because

Accepted Answer

A)  demand for the product will exceed supply. 
B)  the seller would start a price war. 
C)  the seller can sell any quantity she wants at the prevailing market price. 
D)  demand is perfectly inelastic. 
A)  demand for the product will exceed supply. 
B)  the seller would start a price war. 
C)  the seller can sell any quantity she wants at the prevailing market price. 
D)  demand is perfectly inelastic.

Question 8

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run. 
A)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved only in the short run. 
B)  Allocative efficiency is achieved only in the long run. Productive efficiency is achieved in the short run and the long run. 
C)  Allocative efficiency is achieved only in the short run. Productive efficiency is achieved only in the long run. 
D)  Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Question 9

Maximising average profit is equivalent to maximising total profit.

Accepted Answer

A) True 
 B)False

Question 10

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 11

A firm will make a profit when

Accepted Answer

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

Question 12

What is always true at the quantity where a firm's average total cost equals average revenue?

Accepted Answer

A)  The firm's revenue is maximised. 
B)  The firm's profit is maximised. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue. 
A)  The firm's revenue is maximised. 
B)  The firm's profit is maximised. 
C)  The firm breaks even. 
D)  Marginal cost equals marginal revenue.

Question 13

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

Accepted Answer

A company would continue to op

Question 14

-Refer to Table 8-1. If the market price of each camera case is $8, what is the firm's total revenue?

Accepted Answer

A)  $2400 
B)  $3200 
C)  $4000 
D)  $4800 
A)  $2400 
B)  $3200 
C)  $4000 
D)  $4800

Question 15

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market in which organic produce is considered a normal good, and the average income level of consumers is rising?

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

-Refer to Table 8-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00. 
A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00.

Question 17

If a firm shuts down in the short run,

Accepted Answer

A)  its loss equals zero. 
B)  its loss equals its fixed cost. 
C)  it makes zero economic profit. 
D)  its total revenue is not large enough to cover its fixed cost. 
A)  its loss equals zero. 
B)  its loss equals its fixed cost. 
C)  it makes zero economic profit. 
D)  its total revenue is not large enough to cover its fixed cost.

Question 18

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 19

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

Accepted Answer

÷ quantity. Further, a perfectly competi

Question 20

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Accepted Answer

A) True 
 B)False

Firms that are price takers

-Refer to Figure 8-3. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity. Identify the area that represents the loss.

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

-Refer to Figure 8-5. The figure shows the cost structure of a firm in a perfectly competitive market. If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens to its profit-maximising output level?

A perfectly competitive industry achieves allocative efficiency because

An individual seller in perfect competition will not sell at a price lower than the market price because

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Maximising average profit is equivalent to maximising total profit.

A firm will make a profit when

What is always true at the quantity where a firm's average total cost equals average revenue?

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

-Refer to Table 8-1. If the market price of each camera case is $8, what is the firm's total revenue?

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market in which organic produce is considered a normal good, and the average income level of consumers is rising?

-Refer to Table 8-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

If a firm shuts down in the short run,

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

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 Compitive Markets

Firms that are price takers

-Refer to Figure 8-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity. Identify the area that represents the loss.

Which of the following is not an option for a perfectly competitive firm that suffers short-run losses?

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

-Refer to Figure 8-5. The figure shows the cost structure of a firm in a perfectly competitive market. If the firm's fixed cost increases by $1000 due to a new environmental regulation, what happens to its profit-maximising output level?

A perfectly competitive industry achieves allocative efficiency because

An individual seller in perfect competition will not sell at a price lower than the market price because

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Maximising average profit is equivalent to maximising total profit.

A firm will make a profit when

What is always true at the quantity where a firm's average total cost equals average revenue?

Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.

-Refer to Table 8-1. If the market price of each camera case is $8, what is the firm's total revenue?

-Refer to Figure 8-14. Which panel best represents the perfectly competitive organic produce market in which organic produce is considered a normal good, and the average income level of consumers is rising?

-Refer to Table 8-3. What price (P) will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

If a firm shuts down in the short run,

A perfectly competitive firm in a constant-cost industry produces 1000 units of a good at a total cost of $50 000. If the prevailing market price is $48, the number of firms and the industry's output will decrease in the long run.

How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?

In the short run, if price falls below a firm's minimum average total cost, the firm should shut down.

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency , Government Price Setting and Taxes

Concumer Choice and Behavioural Economics

Technology , Production and Costs

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

-Refer to Figure 8-3. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity. Identify the area that represents the loss.