Question 1

Which of the following could not be used to calculate a firm's total profit?

Accepted Answer

A)  Total revenue minus total cost 
B)  Average profit per unit times quantity sold 
C)  (Price minus average total cost) times quantity sold 
D)  Marginal profit times quantity sold 
A)  Total revenue minus total cost 
B)  Average profit per unit times quantity sold 
C)  (Price minus average total cost) times quantity sold 
D)  Marginal profit times quantity sold D

Question 2

Table 7.1
 $$\begin{array} { | c | c | c | } 
\hline \text { Quantity } & \begin{array} { c } 
\text { Total Cost } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Variable Cost } \
\text { (dollars) }
\end{array} \
\hline 0 & \$ 1000 & \$ 0 \
\hline 100 & 1360 & 360 \
\hline 200 & 1560 & 560 \
\hline 300 & 1960 & 960 \
\hline 400 & 2760 & 1760 \
\hline 500 & 4000 & 3000 \
\hline 600 & 5800 & 4800 \
\hline
\end{array}$$ Table 7.1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
-Refer to Table 7.1.Suppose the fixed cost of production rises by $500 and the price per unit is still $8.What happens to the firm's profit-maximising output level?

Accepted Answer

A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down. 
A)  It must fall. 
B)  It must rise to offset the increased cost. 
C)  It will remain the same. 
D)  The firm will shut down. C

Question 3

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

Accepted Answer

A)  No, it should shut down because it is incurring a loss. 
B)  Yes, it should continue to produce because its price exceeds its average fixed cost. 
C)  Yes, it should continue to produce because it is minimising its loss. 
D)  There is insufficient information to answer the question. 
A)  No, it should shut down because it is incurring a loss. 
B)  Yes, it should continue to produce because its price exceeds its average fixed cost. 
C)  Yes, it should continue to produce because it is minimising its loss. 
D)  There is insufficient information to answer the question. C

Question 4

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The price of each good is $10.What is 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 5

The demand curve for an individual seller's product in perfect competition is

Accepted Answer

A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  the same as market demand. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 6

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 7

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

Accepted Answer

A)  will usually rise. 
B)  will usually fall. 
C)  will usually remain stable. 
D)  will eventually fall to zero. 
A)  will usually rise. 
B)  will usually fall. 
C)  will usually remain stable. 
D)  will eventually fall to zero.

Question 8

Table 7.3
 $$\begin{array} { | c | r | r | c | } 
\hline \text { Quantity } & \text { Total Cost } & \text { Total Cost } & \text { Marginal } \
\hline 0 & \$ 10.00 & - - - - & - - - - \
\hline 1 & 15.00 & \$ 15.00 & \$ 5.00 \
\hline 2 & 17.50 & 8.75 & 2.50 \
\hline 3 & 22.50 & 7.50 & 5.00 \
\hline 4 & 30.00 & 7.50 & 7.50 \
\hline 5 & 40.00 & 8.00 & 10.00 \
\hline 6 & 52.50 & 8.75 & 12.50 \
\hline 7 & 67.50 & 9.64 & 15.00 \
\hline 8 & 85.00 & 10.63 & 17.50 \
\hline 9 & 105.00 & 11.67 & 20.00 \
\hline
\end{array}$$ Arnie sells basketballs in a perfectly competitive market. Table 7.3 summarises Arnie's output per day (Q), total cost (TC), average total cost (ATC), and marginal cost (MC).
-Refer to Table 7.3.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 9

What assumptions are necessary for a market to be perfectly competitive? Explain why each of these assumptions is important.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The assumptions necessary for a market t

Question 10

The difference between allocative efficiency and productive efficiency in a perfectly competitive market is:

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 11

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 12

In a graph with output on the horizontal axis and total revenue on the vertical axis,the shape of the total revenue curve for a perfectly competitive seller is

Accepted Answer

A)  U-shaped. 
B)  inverted U-shaped. 
C)  a horizontal line. 
D)  a ray from the origin. 
A)  U-shaped. 
B)  inverted U-shaped. 
C)  a horizontal line. 
D)  a ray from the origin.

Question 13

Of the following industries,which are perfectly competitive? For those that are not perfectly competitive,explain why.
a.Restaurants
b.Corn
c.University education
d.Local radio and television
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a.Restaurants are not perfectly competit

Question 14

The perfectly competitive market structure benefits consumers because

Accepted Answer

A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller mark-up over average cost than firms in any other type of market structure. 
D)  firms produce high quality goods at low prices. 
A)  firms do not produce goods at the lowest possible price in the long run. 
B)  firms are forced by competitive pressure to be as efficient as possible. 
C)  firms add a much smaller mark-up over average cost than firms in any other type of market structure. 
D)  firms produce high quality goods at low prices.

Question 15

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

A) True 
 B)False

Question 16

Figure 7.11  
-Refer to Figure 7.11.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 17

In perfect competition,

Accepted Answer

A)  the market demand curve and the individual's demand are identical. 
B)  the market demand curve is perfectly inelastic, while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic, while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping, while demand for an individual seller's product is perfectly elastic. 
A)  the market demand curve and the individual's demand are identical. 
B)  the market demand curve is perfectly inelastic, while demand for an individual seller's product is perfectly elastic. 
C)  the market demand curve is perfectly elastic, while demand for an individual seller's product is perfectly inelastic. 
D)  the market demand curve is downward sloping, while demand for an individual seller's product is perfectly elastic.

Question 18

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 19

Apple introduced its iPhone 3G in July 2008,and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

Accepted Answer

A)  the ease at which a new firm can enter a competitive market is low. 
B)  the ease at which a new firm can enter a competitive market is high. 
C)  entry into the market is blocked. 
D)  entry into the market is restricted in the short run, but becomes easier in the long run. 
A)  the ease at which a new firm can enter a competitive market is low. 
B)  the ease at which a new firm can enter a competitive market is high. 
C)  entry into the market is blocked. 
D)  entry into the market is restricted in the short run, but becomes easier in the long run.

Question 20

What is the minimum point on the average variable cost curve called?

Accepted Answer

A)  The shutdown point 
B)  The break-even point 
C)  The loss minimising point 
D)  The point of diminishing returns 
A)  The shutdown point 
B)  The break-even point 
C)  The loss minimising point 
D)  The point of diminishing returns

Which of the following could not be used to calculate a firm's total profit?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

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

The demand curve for an individual seller's product in perfect competition is

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?

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

The difference between allocative efficiency and productive efficiency in a perfectly competitive market is:

A perfectly competitive firm earns a profit when price is

In a graph with output on the horizontal axis and total revenue on the vertical axis,the shape of the total revenue curve for a perfectly competitive seller is

The perfectly competitive market structure benefits consumers because

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Figure 7.11 -Refer to Figure 7.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium,

In perfect competition,

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

Apple introduced its iPhone 3G in July 2008,and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

What is the minimum point on the average variable cost curve called?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Exam 7: Firms in Perfectly Competitive Markets

Which of the following could not be used to calculate a firm's total profit?

A perfectly competitive firm produces 3000 units of a good at a total cost of $36 000.The fixed cost of production is $20 000.The price of each good is $10.Should the firm continue to produce in the short run?

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

The demand curve for an individual seller's product in perfect competition is

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?

Ethan Nicholas,who developed the iShoot application for the iPhone 3G,found that to maintain sales in a profitable competitive market,the price of a product

The difference between allocative efficiency and productive efficiency in a perfectly competitive market is:

A perfectly competitive firm earns a profit when price is

In a graph with output on the horizontal axis and total revenue on the vertical axis,the shape of the total revenue curve for a perfectly competitive seller is

The perfectly competitive market structure benefits consumers because

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Figure 7.11 -Refer to Figure 7.11.Suppose the prevailing price is P1 and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium,

In perfect competition,

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

Apple introduced its iPhone 3G in July 2008,and within a month sales had topped 3 million units.By April 2009,more than 25 000 apps for the iPhone 3G were available in the iTunes store,an indication that in a competitive market,

What is the minimum point on the average variable cost curve called?

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency,government Price Setting and Taxes

Technology,production and Costs

Monopoly Markets

Monopolistic Competition and Oligopoly

The Markets for Labour and Other Factors of Production

Government Intervention in the Market

Social Policy and Inequality

Gdp: Measuring Total Production, income and Economic Growth

Unemployment and Inflation

Aggregate Demand and Aggregate Supply Analysis

Money,banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Comparative Advantage and the Gains From International Trade

Macroeconomics in an Open Economy

Filters

Figure 7.11 -Refer to Figure 7.11.Suppose the prevailing price is P₁ and the firm is currently producing its loss-minimising quantity.In the long-run equilibrium,