Question 1

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

Accepted Answer

A)  is earning a profit. 
B)  should shut down. 
C)  should increase output. 
D)  should increase price. 
A)  is earning a profit. 
B)  should shut down. 
C)  should increase output. 
D)  should increase price.

Question 2

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 3

Figure 7.15  
-Use the figure above to answer the following questions.
a.How can you determine that the figure represents a graph of a perfectly competitive firm? Be specific; indicate which curve gives you the information and how you use this information to arrive at your conclusion.
b.What is the market price?
c.What is the profit-maximising output?
d.What is total revenue at the profit-maximising output?
e.What is the total cost at the profit-maximising output?
f.What is the profit or loss at the profit-maximising output?
g.What is the firm's total fixed cost?
h.What is the total variable cost?
i.Identify the firm's short-run supply curve.
j.Is the industry in a long-run equilibrium?
k.If it is not in long-run equilibrium,what will happen in this industry to restore long-run equilibrium?
l.In long-run equilibrium,what is the firm's profit maximising quantity?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a.The perfectly competitive firm is a pr

Question 4

Figure 7.12  
-Refer to Figure 7.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

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 5

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 $20.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 6 teapot

Question 6

If the long-run average cost curve is U-shaped,what is the optimal scale of production from society's viewpoint?

Accepted Answer

A)  The minimum efficient scale 
B)  Where maximum economic profit is earned by producers 
C)  Where firm profit is large enough to finance research and development 
D)  One which guarantees economic profit 
A)  The minimum efficient scale 
B)  Where maximum economic profit is earned by producers 
C)  Where firm profit is large enough to finance research and development 
D)  One which guarantees economic profit

Question 7

In the long run,perfectly competitive firms earn zero economic profit.Why do firms enter an industry when they know that in the long run they will not earn any profit?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Even though in the long run firms earn z

Question 8

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 P2,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 9

Which of the following is the best example of a perfectly competitive industry?

Accepted Answer

A)  Wheat production 
B)  Steel production 
C)  Electricity production 
D)  Airplane production 
A)  Wheat production 
B)  Steel production 
C)  Electricity production 
D)  Airplane production

Question 10

Why are individual buyers and sellers in perfect competition called price takers?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

They are called price takers b

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

What is meant by the term 'long-run competitive equilibrium'?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Long-run competitive equilibri

Question 13

Which of the following is true of 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 14

If a perfectly competitive firm achieves productive efficiency,then

Accepted Answer

A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost. 
A)  it will raise its price in order to earn an economic profit. 
B)  the price of the good it sells is equal to the benefit consumers receive from consuming the last unit of the good sold. 
C)  it is producing at minimum efficient scale. 
D)  it is producing the good it sells at the lowest possible cost.

Question 15

Producing where marginal revenue equals marginal cost is equivalent to producing where

Accepted Answer

A)  average total cost equals average revenue. 
B)  average fixed cost is minimised. 
C)  total revenue is equal to total cost. 
D)  total profit is maximised. 
A)  average total cost equals average revenue. 
B)  average fixed cost is minimised. 
C)  total revenue is equal to total cost. 
D)  total profit is maximised.

Question 16

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Accepted Answer

A) True 
 B)False

Question 17

Figure 7.5   Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry.
-Refer to Figure 7.5.The firm's manager suggests that the firm's goal should be to maximise average profit.If the firm does this,the amount of profit that it will earn is -.

Accepted Answer

A)  $6600 
B)  $6750 
C)  $12 150 
D)  $36 000 
A)  $6600 
B)  $6750 
C)  $12 150 
D)  $36 000

Question 18

If productive efficiency characterises a market,

Accepted Answer

A)  the marginal cost of production is minimised. 
B)  firms produce the goods that consumers desire most. 
C)  the output is being produced at the lowest possible cost. 
D)  firms use the best technology available to produce the good. 
A)  the marginal cost of production is minimised. 
B)  firms produce the goods that consumers desire most. 
C)  the output is being produced at the lowest possible cost. 
D)  firms use the best technology available to produce the good.

Question 19

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

Accepted Answer

A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant. 
A)  firms are breaking even. 
B)  new firms are attracted to the industry. 
C)  existing firms will exit the industry. 
D)  market supply will remain constant.

Question 20

Figure 7.4   Figure 7.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market.
-Refer to Figure 7.4.If the market price is $30,should the firm represented in the diagram continue to stay in business?

Accepted Answer

A)  No, it should shut down because it is incurring a loss. 
B)  No, it should shut down because it cannot cover its variable cost. 
C)  Yes, because it is covering part of its fixed cost. 
D)  Yes, because it is making a profit. 
A)  No, it should shut down because it is incurring a loss. 
B)  No, it should shut down because it cannot cover its variable cost. 
C)  Yes, because it is covering part of its fixed cost. 
D)  Yes, because it is making a profit.

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

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

Figure 7.12 -Refer to Figure 7.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

If the long-run average cost curve is U-shaped,what is the optimal scale of production from society's viewpoint?

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 P₂,the firm would

Which of the following is the best example of a perfectly competitive industry?

Why are individual buyers and sellers in perfect competition called price takers? __________________________________________________________________________________________________________________________________________________________________________________________

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

What is meant by the term 'long-run competitive equilibrium'? __________________________________________________________________________________________________________________________________________________________________________________________

Which of the following is true of firms that are price takers?

If a perfectly competitive firm achieves productive efficiency,then

Producing where marginal revenue equals marginal cost is equivalent to producing where

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.The firm's manager suggests that the firm's goal should be to maximise average profit.If the firm does this,the amount of profit that it will earn is -.

If productive efficiency characterises a market,

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

Figure 7.4 Figure 7.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7.4.If the market price is $30,should the firm represented in the diagram continue to stay in business?

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

If,for a given output level,a perfectly competitive firm's price is less than its average variable cost,the firm

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

Figure 7.12 -Refer to Figure 7.12.Consider a typical firm in a perfectly competitive industry which is incurring short-run losses.Which of the diagrams in the figure shows the effect on the industry as it transitions to a long-run equilibrium?

If the long-run average cost curve is U-shaped,what is the optimal scale of production from society's viewpoint?

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 P2,the firm would

Which of the following is the best example of a perfectly competitive industry?

Why are individual buyers and sellers in perfect competition called price takers? __________________________________________________________________________________________________________________________________________________________________________________________

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

What is meant by the term 'long-run competitive equilibrium'? __________________________________________________________________________________________________________________________________________________________________________________________

Which of the following is true of firms that are price takers?

If a perfectly competitive firm achieves productive efficiency,then

Producing where marginal revenue equals marginal cost is equivalent to producing where

In the short run,if a firm shuts down its maximum loss equals the amount of its fixed cost.

Figure 7.5 Figure 7.5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. -Refer to Figure 7.5.The firm's manager suggests that the firm's goal should be to maximise average profit.If the firm does this,the amount of profit that it will earn is -.

If productive efficiency characterises a market,

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

Figure 7.4 Figure 7.4 shows the cost and demand curves for a profit-maximising firm in a perfectly competitive market. -Refer to Figure 7.4.If the market price is $30,should the firm represented in the diagram continue to stay in business?

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 7.7 Figure 7.7 shows cost and demand curves facing a profit-maximising, perfectly competitive firm. -Refer to Figure 7.7.At price P₂,the firm would