Question 1

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

Accepted Answer

A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125. 
A)  $5. 
B)  $12.50. 
C)  $25. 
D)  $125.

Question 2

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

Accepted Answer

A) True 
 B)False

Question 3

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

Accepted Answer

A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic. 
A)  The firm's revenue will not change because some consumers will refuse to pay the higher price. 
B)  The firm will not sell any output. 
C)  The firm's total revenue will increase only if the demand for its product is inelastic. 
D)  The firm's total revenue will increase only if the demand for its product is elastic.

Question 4

A constant-cost industry is an industry in which

Accepted Answer

A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs. 
A)  average costs fall as the industry expands output. 
B)  average costs rise as the industry expands output. 
C)  average costs remain constant as the industry expands output. 
D)  input prices rise at a constant rate as firms in the industry use more inputs.

Question 5

Which of the following is not a characteristic of a perfectly competitive market structure?

Accepted Answer

A)  There is a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms. 
A)  There is a very large number of firms that are small compared to the market. 
B)  All firms sell identical products. 
C)  There are no restrictions to entry by new firms. 
D)  There are restrictions on exit of firms.

Question 6

-Refer to Figure 8-11. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity. In the long-run equilibrium

Accepted Answer

A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant. 
A)  there will be fewer firms in the industry and total industry output decreases. 
B)  there will be more firms in the industry and total industry output increases. 
C)  there will be fewer firms in the industry but total industry output increases. 
D)  there will be more firms in the industry and total industry output remains constant.

Question 7

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry.

Accepted Answer

A) True 
 B)False

Question 8

-Refer to Figure 8-9. Suppose the prevailing price is $20 and the firm is currently producing 1350 units. In the long-run equilibrium, the firm represented in the diagram

Accepted Answer

A)  will continue to produce the same quantity. 
B)  will reduce its output to 1100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist. 
A)  will continue to produce the same quantity. 
B)  will reduce its output to 1100 units. 
C)  will reduce its output to 750 units. 
D)  will cease to exist.

Question 9

-Refer to Table 8-1. What is the fixed cost of production?

Accepted Answer

A)  $0 
B)  $500 
C)  $1000 
D)  It cannot be determined. 
A)  $0 
B)  $500 
C)  $1000 
D)  It cannot be determined.

Question 10

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 11

-Refer to Figure 8-16. If the market price is P1, what is the allocatively efficient output level?

Accepted Answer

A)  Q0 
B)  Q1 
C)  Q2 
D)  There is no allocatively efficient output level because the firm is incurring a loss. 
A)  Q0 
B)  Q1 
C)  Q2 
D)  There is no allocatively efficient output level because the firm is incurring a loss.

Question 12

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

Accepted Answer

A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price. 
A)  increase its output. 
B)  reduce its output. 
C)  keep output constant and enjoy the above normal profit. 
D)  lower the price.

Question 13

In analysing the decision to shut down in the short run, we assume that the firm's fixed costs are

Accepted Answer

A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs. 
A)  implicit costs. 
B)  capital costs. 
C)  nonmonetary opportunity costs. 
D)  sunk costs.

Question 14

If in the long run a firm makes zero profit, it should exit the industry.

Accepted Answer

A) True 
 B)False

Question 15

Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.

Accepted Answer

The market demand is downward sloping wh

Question 16

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000. The price of each good is $10. Calculate the firm's short-run profit or loss.

Accepted Answer

A)  loss of $6000 
B)  profit of $6000 
C)  profit of $30 000 
D)  There is insufficient information to answer the question. 
A)  loss of $6000 
B)  profit of $6000 
C)  profit of $30 000 
D)  There is insufficient information to answer the question.

Question 17

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800 000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,

Accepted Answer

A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run. 
A)  earning an economic profit in the long run is extremely easy. 
B)  earning an economic profit in the long run is extremely difficult. 
C)  it is impossible to earn an economic profit in either the short run or the long run. 
D)  economic profits are only earned in the long run.

Question 18

-Refer to Figure 8-7. At price P4, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit. 
A)  lose an amount equal to its fixed cost. 
B)  make a profit. 
C)  lose an amount less than fixed cost. 
D)  make a normal profit.

Question 19

-Refer to Figure 8-7. At price P3, the firm would

Accepted Answer

A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even. 
A)  lose an amount equal to its fixed cost. 
B)  lose an amount more than fixed cost. 
C)  lose an amount less than fixed cost. 
D)  break even.

Question 20

A wheat farmer and a firm in a perfectly competitive market are similar in that

Accepted Answer

A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost. 
A)  both face vertical demand curves. 
B)  both have to lower their prices if a rival firm lowers its price. 
C)  both face horizontal demand curves. 
D)  both will earn an economic profit if their total revenue equals their total cost.

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

A constant-cost industry is an industry in which

Which of the following is not a characteristic of a perfectly competitive market structure?

-Refer to Figure 8-11. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity. In the long-run equilibrium

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry.

-Refer to Figure 8-9. Suppose the prevailing price is $20 and the firm is currently producing 1350 units. In the long-run equilibrium, the firm represented in the diagram

-Refer to Table 8-1. What is the fixed cost of production?

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

-Refer to Figure 8-16. If the market price is P₁, what is the allocatively efficient output level?

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

In analysing the decision to shut down in the short run, we assume that the firm's fixed costs are

If in the long run a firm makes zero profit, it should exit the industry.

Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000. The price of each good is $10. Calculate the firm's short-run profit or loss.

In August 2008, Ethan Nicholas developed the iShoot application for the apple iPhone 3G, and within five months had earned $800 000 from this program. By May 2009, Nicholas had dropped the price from $4.99 to $1.99 in an attempt to maintain sales. This example indicates that in a competitive market,

-Refer to Figure 8-7. At price P₄, the firm would

-Refer to Figure 8-7. At price P₃, the firm would

A wheat farmer and a firm in a perfectly competitive market are similar in that

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

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

A constant-cost industry is an industry in which

Which of the following is not a characteristic of a perfectly competitive market structure?

-Refer to Figure 8-11. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity. In the long-run equilibrium

Suppose there are economies of scale in the production of a specialised memory chip that is used in manufacturing microwaves. This suggests that the microwave industry is a decreasing-cost industry.

-Refer to Figure 8-9. Suppose the prevailing price is $20 and the firm is currently producing 1350 units. In the long-run equilibrium, the firm represented in the diagram

-Refer to Table 8-1. What is the fixed cost of production?

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

-Refer to Figure 8-16. If the market price is P1, what is the allocatively efficient output level?

If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should

In analysing the decision to shut down in the short run, we assume that the firm's fixed costs are

If in the long run a firm makes zero profit, it should exit the industry.

Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically.

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000. The price of each good is $10. Calculate the firm's short-run profit or loss.

-Refer to Figure 8-7. At price P4, the firm would

-Refer to Figure 8-7. At price P3, the firm would

A wheat farmer and a firm in a perfectly competitive market are similar in that

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 8-11. Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity. In the long-run equilibrium

-Refer to Figure 8-16. If the market price is P₁, what is the allocatively efficient output level?

-Refer to Figure 8-7. At price P₄, the firm would

-Refer to Figure 8-7. At price P₃, the firm would