Question 1

How are sunk costs and fixed costs related?

Accepted Answer

A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other. 
A)  They are not related in any way. 
B)  Sunk costs cannot be recovered and fixed costs can be avoided by shutting down. 
C)  In the short run they are equal to each other. 
D)  In the long run they are equal to each other.

Question 2

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

Accepted Answer

A) True 
 B)False

Question 3

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

Accepted Answer

A) True 
 B)False

Question 4

Using two graphs, illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market. On the first graph, use a supply and demand graph to illustrate the positive technological change. On the second graph, use demand, ATC, MC and MR curves to illustrate the elimination of economic profit resulting from the positive technological change. Explain what is taking place in each graph.

Accepted Answer

On the first graph, supply shifts to the

Question 5

-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Accepted Answer

A)  Q = 1; profit = -$10. 
B)  Q = 3; profit = -$7.50 
C)  Q = 0; profit = -$10.00 
D)  Price and profit cannot be determined from the information given. 
A)  Q = 1; profit = -$10. 
B)  Q = 3; profit = -$7.50 
C)  Q = 0; profit = -$10.00 
D)  Price and profit cannot be determined from the information given.

Question 6

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

Accepted Answer

A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question. 
A)  continue producing at the current output. 
B)  produce a larger level of output. 
C)  produce a smaller level of output. 
D)  There is not enough information given to answer the question.

Question 7

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

Accepted Answer

A) True 
 B)False

Question 8

In a perfectly competitive market, the term 'price taker' applies to

Accepted Answer

A)  sellers and buyers. 
B)  firms but not buyers. 
C)  buyers but not sellers. 
D)  only the smallest sellers and buyers. 
A)  sellers and buyers. 
B)  firms but not buyers. 
C)  buyers but not sellers. 
D)  only the smallest sellers and buyers.

Question 9

In a graph that illustrates a perfectly competitive firm, marginal revenue is

Accepted Answer

A)  a diagonal line that lies below the firm's demand curve. 
B)  a line that intersects the firm's demand curve from below at its lowest point. 
C)  a line that intersects the firm's average total cost curve from below at its lowest point. 
D)  the same as the firm's demand curve. 
A)  a diagonal line that lies below the firm's demand curve. 
B)  a line that intersects the firm's demand curve from below at its lowest point. 
C)  a line that intersects the firm's average total cost curve from below at its lowest point. 
D)  the same as the firm's demand curve.

Question 10

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Accepted Answer

A)  $5400 
B)  $6750 
C)  $8100 
D)  It cannot be determined. 
A)  $5400 
B)  $6750 
C)  $8100 
D)  It cannot be determined.

Question 11

Firms in perfect competition are price takers because

Accepted Answer

A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence price. 
A)  one firm determines the price that all other firms in the industry will charge. 
B)  consumers have enough market power to set prices. 
C)  firms accept the price determined by the government. 
D)  each firm is too small relative to the market to be able to influence price.

Question 12

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

Accepted Answer

A)  the industry supply will not change. 
B)  new firms are attracted to the industry. 
C)  some existing firms will exit the industry. 
D)  firms are breaking even. 
A)  the industry supply will not change. 
B)  new firms are attracted to the industry. 
C)  some existing firms will exit the industry. 
D)  firms are breaking even.

Question 13

A perfectly competitive firm's supply curve is its

Accepted Answer

A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost. 
A)  marginal cost curve. 
B)  marginal cost curve above its minimum average total cost. 
C)  marginal cost curve above its minimum average variable cost. 
D)  marginal cost curve above its minimum average fixed cost.

Question 14

Perfect competition is characterised by all of the following except

Accepted Answer

A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers. 
A)  heavy advertising by individual sellers. 
B)  homogeneous products. 
C)  sellers are price takers. 
D)  a horizontal demand curve for individual sellers.

Question 15

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

Accepted Answer

A) True 
 B)False

Question 16

-Refer to Table 8-4. If the market price is $45, the firm

Accepted Answer

A)  will earn a profit of $3600. 
B)  will suffer a loss of $200. 
C)  will break even. 
D)  will earn profit of $1040. 
A)  will earn a profit of $3600. 
B)  will suffer a loss of $200. 
C)  will break even. 
D)  will earn profit of $1040.

Question 17

A perfectly competitive firm earns a profit when price is

Accepted Answer

A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost. 
A)  equal to minimum average total cost. 
B)  above minimum average total cost. 
C)  equal to minimum average variable cost. 
D)  equal to minimum average fixed cost.

Question 18

-Refer to Figure 8-1. If the firm is producing 200 units,

Accepted Answer

A)  it breaks even. 
B)  it is incurring a loss. 
C)  it should cut back its output to maximise profit. 
D)  it should increase its output to maximise profit. 
A)  it breaks even. 
B)  it is incurring a loss. 
C)  it should cut back its output to maximise profit. 
D)  it should increase its output to maximise profit.

Question 19

In an increasing-cost industry, the long-run supply curve is upward sloping.

Accepted Answer

A) True 
 B)False

Question 20

-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

Accepted Answer

A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue 
A)  total variable cost 
B)  profit 
C)  total fixed cost 
D)  total revenue

How are sunk costs and fixed costs related?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

In a perfectly competitive market, the term 'price taker' applies to

In a graph that illustrates a perfectly competitive firm, marginal revenue is

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Firms in perfect competition are price takers because

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

A perfectly competitive firm's supply curve is its

Perfect competition is characterised by all of the following except

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

-Refer to Table 8-4. If the market price is $45, the firm

A perfectly competitive firm earns a profit when price is

-Refer to Figure 8-1. If the firm is producing 200 units,

In an increasing-cost industry, the long-run supply curve is upward sloping.

-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

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

How are sunk costs and fixed costs related?

The market demand curve for a perfectly competitive industry is the horizontal summation of each individual firm's demand curve.

A perfectly competitive firm breaks even at a price equal to its minimum average total cost.

-Refer to Table 8-3. What will Arnie's output be and how much profit will he earn if the market price of basketballs is $5.00?

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximise profits the firm should

Being a price-taker, a perfectly competitive firm cannot receive a producer surplus in the short run.

In a perfectly competitive market, the term 'price taker' applies to

In a graph that illustrates a perfectly competitive firm, marginal revenue is

-Refer to Figure 8-5. What is the amount of the firm's fixed cost of production?

Firms in perfect competition are price takers because

If, in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue,

A perfectly competitive firm's supply curve is its

Perfect competition is characterised by all of the following except

A perfectly competitive firm's horizontal demand curve implies that the firm does not have to lower its price to sell more output.

-Refer to Table 8-4. If the market price is $45, the firm

A perfectly competitive firm earns a profit when price is

-Refer to Figure 8-1. If the firm is producing 200 units,

In an increasing-cost industry, the long-run supply curve is upward sloping.

-Refer to Figure 8-6. Suppose the firm produces 4000 units. What does the shaded area labeled A represent?

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