Question 1

In a perfectly competitive industry,in the long-run equilibrium

Accepted Answer

A)  the typical firm is producing at the output where its long-run average total cost is not minimised. 
B)  the typical firm is earning an accounting profit greater than its implicit costs. 
C)  the typical firm earns zero profit. 
D)  the typical firm is maximising its revenue. 
A)  the typical firm is producing at the output where its long-run average total cost is not minimised. 
B)  the typical firm is earning an accounting profit greater than its implicit costs. 
C)  the typical firm earns zero profit. 
D)  the typical firm is maximising its revenue.

Question 2

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

Accepted Answer

A) True 
 B)False

Question 3

If a firm shuts down,it

Accepted Answer

A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs. 
A)  will suffer a loss equal to its fixed costs. 
B)  will produce nothing but must pay its variable costs. 
C)  will produce nothing but must pay its fixed and variable costs. 
D)  will earn enough revenue to cover its variable costs but not all of its fixed costs.

Question 4

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Accepted Answer

A) True 
 B)False

Question 5

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.The fixed cost of production is

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 6

Figure 7.7   Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm.
-Refer to Figure 7.7.At price P4,the firm would produce

Accepted Answer

A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units. 
A)  Q3 units. 
B)  Q4 units. 
C)  Q5 units. 
D)  Q6 units.

Question 7

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 8

Figure 7.14  
-Refer to Figure 7.14.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 9

Figure 7.1  
-Refer to Figure 7.1.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 10

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Accepted Answer

A) True 
 B)False

Question 11

Suppose Veronica sells teapots in the perfectly competitive teapot market.Her output per day and her costs are as follows:
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Output per } \
\text { Day }
\end{array} & \text { Total Cost } \
\hline 0 & \$ 20 \
\hline 1 & 32 \
\hline 2 & 37 \
\hline 3 & 48 \
\hline 4 & 61 \
\hline 5 & 75 \
\hline 6 & 92 \
\hline 7 & 113 \
\hline 8 & 136 \
\hline
\end{array}$$ Suppose the current equilibrium price in the teapot market is $10.To maximise profit,how many teapots will Veronica produce,what price will she charge,and how much profit (or loss)will she make? Draw a graph to illustrate your answer.Your graph should include Veronica's demand,ATC,AVC,MC,and MR curves,the price she is charging,the quantity she is producing,and the area representing her profit (or loss).
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Veronica will produce 2 teapot

Question 12

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 13

Figure 7.14  
-Refer to Figure 7.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

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 14

If a firm in a perfectly competitive industry experiences persistent losses,what should it do in the long run?

Accepted Answer

A)  Shut down temporarily and wait for market conditions to change. 
B)  Exit the industry. 
C)  Raise its price to cover average total cost. 
D)  Continue to operate if it can raise the demand for its product through advertising and quality improvements. 
A)  Shut down temporarily and wait for market conditions to change. 
B)  Exit the industry. 
C)  Raise its price to cover average total cost. 
D)  Continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question 15

Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

Accepted Answer

A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC 
A)  P - ATC 
B)  (P - AT
C)  × Q 
C)  (P × Q) - TC 
D)  P - TC

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.The firm will not produce in the short run if the output price falls below

Accepted Answer

A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80. 
A)  $8. 
B)  $4. 
C)  $3.20. 
D)  $2.80.

Question 18

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 7.5 shows the firm's cost schedule.
Table 7.5
 $\begin{array}{|c|c|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity } \
\text { (cases) }
\end{array} & \begin{array}{c}
\text { Variable } \
\text { Cost }
\end{array} & \text { Total Cost } & \begin{array}{c}
\text { Marginal } \
\text { Cost }
\end{array} & \begin{array}{l}
\text { Average } \
\text { Variable } \
\text { Cost }
\end{array} & \begin{array}{l}
\text { Average } \
\text { Total Cost }
\end{array} \
\hline 0 & \$ 0 & \$ 76 & & & \
\hline 1 & 30 & 106 & & & \
\hline 2 & 50 & & & & \
\hline 3 & & 134 & & & \
\hline 4 & & 140 & & & \
\hline 5 & & 160 & & & \
\hline 6 & 114 & & & & \
\hline 7 & 150 & & & & \
\hline 8 & 190 & & & & \
\hline 9 & & 316 & & & \
\hline
\end{array}$
 Use the table to answer the following questions.
a.Complete Table 7.5 by filling in the blank cells.
b.Werner is selling in a perfectly competitive market at a price of $40.What is the profit-maximising or loss-minimising output?
c.Calculate the firm's profit or loss.
d.Should the firm continue to produce in the short run? Explain.
e.If the firm's fixed costs were $30 higher,what would be the profit-maximising output level in the short run? Indicate whether the output level will increase,decrease or remain unchanged compared to your answer in b.
f.Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20,what is the profit-maximising or loss-minimising output?
g.Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer.
h.Suppose the fixed cost remains at $76.What price corresponds to the shut-down point?
i.Suppose the fixed cost remains at $76.What price corresponds to the break-even point?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a.
 b.Quantity = 8 units.
c.Profit = $54

Question 19

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

Accepted Answer

They are all equal to each other.The mar

Question 20

At the profit-maximising level of output for a perfectly competitive firm,

Accepted Answer

A)  price equals marginal cost. 
B)  average revenue equals average variable cost, and price equals marginal cost. 
C)  marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D)  price equals average revenue, and marginal cost equals average variable cost. 
A)  price equals marginal cost. 
B)  average revenue equals average variable cost, and price equals marginal cost. 
C)  marginal revenue equals marginal cost, and average total cost equals average fixed cost. 
D)  price equals average revenue, and marginal cost equals average variable cost.

In a perfectly competitive industry,in the long-run equilibrium

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

If a firm shuts down,it

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₄,the firm would produce

If a firm shuts down in the short run,

Figure 7.14 -Refer to Figure 7.14.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?

Figure 7.1 -Refer to Figure 7.1.If the firm is producing 200 units,

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

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

Figure 7.14 -Refer to Figure 7.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

If a firm in a perfectly competitive industry experiences persistent losses,what should it do in the long run?

Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

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

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

At the profit-maximising level of output for a perfectly competitive firm,

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

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Exam 7: Firms in Perfectly Competitive Markets

In a perfectly competitive industry,in the long-run equilibrium

In the short run,if a firm shuts down it avoids its variable cost but not its fixed cost.

If a firm shuts down,it

The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.

Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P4,the firm would produce

If a firm shuts down in the short run,

Figure 7.14 -Refer to Figure 7.14.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?

Figure 7.1 -Refer to Figure 7.1.If the firm is producing 200 units,

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

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

Figure 7.14 -Refer to Figure 7.14.Which panel best represents the perfectly competitive organic produce market's transition to the long run when some firms in the market are earning economic profits?

If a firm in a perfectly competitive industry experiences persistent losses,what should it do in the long run?

Letters are used to represent the terms used to answer this question: price (P),quantity of output (Q),total cost (TC)and average total cost (ATC).Which of the following equations is equal to a firm's average profit?

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

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

At the profit-maximising level of output for a perfectly competitive firm,

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

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Figure 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₄,the firm would produce