Question 1

Figure 7.16  
-Refer to Figure 7.16.If the market price is P1,the allocatively efficient output level is -.

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 2

Figure 7.9  
-Refer to Figure 7.9.If this is a constant-cost industry,the market price in the long-run equilibrium is -.

Accepted Answer

A)  $5 
B)  $14 
C)  $15 
D)  $20 
A)  $5 
B)  $14 
C)  $15 
D)  $20

Question 3

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

Accepted Answer

A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production. 
A)  should raise its price above its average variable cost. 
B)  should continue to produce and increase its demand. 
C)  should stop production by shutting down temporarily. 
D)  should adopt new technology in order to lower its costs of production.

Question 4

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 and if the firm is producing output,the amount of its total variable cost is -.

Accepted Answer

A)  $7200 
B)  $6480 
C)  $5400 
D)  $3960 
A)  $7200 
B)  $6480 
C)  $5400 
D)  $3960

Question 5

What demand curve is faced by a perfectly competitive firm?

Accepted Answer

A)  Horizontal 
B)  Vertical 
C)  Perpendicular to the quantity axis 
D)  Perfectly inelastic 
A)  Horizontal 
B)  Vertical 
C)  Perpendicular to the quantity axis 
D)  Perfectly inelastic

Question 6

Assuming a market price of $4,fill in the columns in the following table.What is the profit-maximising level of production? What are the two ways to determine the profit-maximising level of production?
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline & \text { Total } & \text { Total } & & \text { Marginal } & \
\text { Quantity } & \begin{array} { c } 
\text { Revenue } \
( T R )
\end{array} & \begin{array} { c } 
\text { Cost } \
( T C )
\end{array} & \text { Profit } & \begin{array} { c } 
\text { Revenue } \
( M R )
\end{array} & \text { Marginal } \
\hline 0 & & 3 & & & \
\hline 1 & & 5 & & & \
\hline 2 & & 6 & & & \
\hline 3 & & 9 & & & \
\hline 4 & & 14 & & & \
\hline 5 & & 20 & & & \
\hline 6 & & 28 & & & \
\hline 7 & & 40 & & & \
\hline
\end{array}$$ __________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The profit-maximising level of productio

Question 7

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 price (P)will Arnie charge and how much profit will he earn if the market price of basketballs is $12.50?

Accepted Answer

A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00. 
A)  Price and profit cannot be determined from the information given. 
B)  P = $12.50; profit = $52.50 
C)  P = $12.50; profit = $22.50 
D)  P = $20; profit = $75.00.

Question 8

Figure 7.6  
-Refer to Figure 7.6.Suppose the firm produces 4000 units.The shaded area labelled A represents

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.

Question 9

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

Accepted Answer

A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question. 
A)  The price remains constant at $15. 
B)  The price falls to $12. 
C)  The price rises above $15. 
D)  There is insufficient information to answer the question.

Question 10

The long-run supply curve for a perfectly competitive,constant-cost industry

Accepted Answer

A)  is upward sloping. 
B)  is horizontal. 
C)  is downward sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry. 
A)  is upward sloping. 
B)  is horizontal. 
C)  is downward sloping. 
D)  is found by adding up the marginal cost curves for all firms in the industry.

Question 11

The price a perfectly competitive firm receives for its output

Accepted Answer

A)  is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B)  is determined by the interaction of all sellers and all buyers in the firm's market. 
C)  will not change in response to changes in market demand and supply because the firm is a price taker. 
D)  will be lowered by the firm in order to sell more output. 
A)  is determined by the interaction of the firm and all of the consumers who buy from the firm. 
B)  is determined by the interaction of all sellers and all buyers in the firm's market. 
C)  will not change in response to changes in market demand and supply because the firm is a price taker. 
D)  will be lowered by the firm in order to sell more output.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Economic profit takes into account all costs involved in producing a product. 
B)  Accounting profit is not relevant in preparing the firm's financial statement. 
C)  Economic profit always exceeds accounting profit. 
D)  Accounting profit is the same as economic profit. 
A)  Economic profit takes into account all costs involved in producing a product. 
B)  Accounting profit is not relevant in preparing the firm's financial statement. 
C)  Economic profit always exceeds accounting profit. 
D)  Accounting profit is the same as economic profit.

Question 13

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.Assuming the firm is profit maximising,the amount of its total fixed cost is -.

Accepted Answer

A)  $1080 
B)  $1440 
C)  $2520 
D)  It cannot be determined. 
A)  $1080 
B)  $1440 
C)  $2520 
D)  It cannot be determined.

Question 14

Figure 7.2  
-Refer to Figure 7.2.What happens if the firm produces more than Q4 units?

Accepted Answer

A)  Its profit increases 
B)  It incurs a loss 
C)  Its total revenue is increasing faster than its total cost 
D)  It could make a profit or a loss depending on what happens to demand 
A)  Its profit increases 
B)  It incurs a loss 
C)  Its total revenue is increasing faster than its total cost 
D)  It could make a profit or a loss depending on what happens to demand

Question 15

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

Accepted Answer

A)  The firm will sell more output than its competitors. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm's profits will increase. 
A)  The firm will sell more output than its competitors. 
B)  The firm's revenue will increase. 
C)  The firm will not sell any output. 
D)  The firm's profits will increase.

Question 16

A perfectly competitive industry achieves allocative efficiency because

Accepted Answer

A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses. 
A)  goods and services are produced at the lowest possible cost. 
B)  goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. 
C)  it produces where market price equals marginal production cost. 
D)  firms carry production surpluses.

Question 17

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

Accepted Answer

A)  Selling product at a farmers' market was very profitable for farmers in the early 2000s. As result, many farmers sold their farms to larger firms. 
B)  Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run. 
C)  Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products. 
D)  Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury. 
A)  Selling product at a farmers' market was very profitable for farmers in the early 2000s. As result, many farmers sold their farms to larger firms. 
B)  Farmers who sell product at a farmers' market are similar to other entrepreneurs who introduce products that earn short-run profits but invite competition that drives down prices and profits in the long run. 
C)  Farmers who sell product at a farmers' market are similar to other business owners who take advantage of the willingness of some consumers to pay high prices for new and different products. 
D)  Farmers selling product at a farmers' market provide a product that is a necessity, rather than a luxury.

Question 18

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 P1,the firm would produce

Accepted Answer

A)  Q1 units. 
B)  Q3 units. 
C)  Q5 units. 
D)  zero units. 
A)  Q1 units. 
B)  Q3 units. 
C)  Q5 units. 
D)  zero units.

Question 19

Why are both buyers and sellers price takers in a perfectly competitive market?

Accepted Answer

A)  Because the price is determined by government intervention and dictated to buyers and sellers. 
B)  Because each buyer and seller knows it is illegal to conspire to affect price. 
C)  Because both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  Because each buyer and seller is too small relative to others to independently affect the market price. 
A)  Because the price is determined by government intervention and dictated to buyers and sellers. 
B)  Because each buyer and seller knows it is illegal to conspire to affect price. 
C)  Because both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. 
D)  Because each buyer and seller is too small relative to others to independently affect the market price.

Question 20

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

Accepted Answer

A)  Productive efficiency 
B)  Allocative efficiency 
C)  Marginal efficiency 
D)  Profit maximisation 
A)  Productive efficiency 
B)  Allocative efficiency 
C)  Marginal efficiency 
D)  Profit maximisation

Figure 7.16 -Refer to Figure 7.16.If the market price is P₁,the allocatively efficient output level is -.

Figure 7.9 -Refer to Figure 7.9.If this is a constant-cost industry,the market price in the long-run equilibrium is -.

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

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 and if the firm is producing output,the amount of its total variable cost is -.

What demand curve is faced by a perfectly competitive firm?

Figure 7.6 -Refer to Figure 7.6.Suppose the firm produces 4000 units.The shaded area labelled A represents

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

The long-run supply curve for a perfectly competitive,constant-cost industry

The price a perfectly competitive firm receives for its output

Which of the following statements is correct?

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.Assuming the firm is profit maximising,the amount of its total fixed cost is -.

Figure 7.2 -Refer to Figure 7.2.What happens if the firm produces more than Q₄units?

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

A perfectly competitive industry achieves allocative efficiency because

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

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 P₁,the firm would produce

Why are both buyers and sellers price takers in a perfectly competitive market?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

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

Figure 7.16 -Refer to Figure 7.16.If the market price is P1,the allocatively efficient output level is -.

Figure 7.9 -Refer to Figure 7.9.If this is a constant-cost industry,the market price in the long-run equilibrium is -.

If a perfectly competitive firm's total revenue is less than its total variable cost,the firm

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 and if the firm is producing output,the amount of its total variable cost is -.

What demand curve is faced by a perfectly competitive firm?

Figure 7.6 -Refer to Figure 7.6.Suppose the firm produces 4000 units.The shaded area labelled A represents

A perfectly competitive wheat farmer in a constant-cost industry produces 3000 bushels of wheat at a total cost of $36 000.The prevailing market price is $15.What will happen to the market price of wheat in the long run?

The long-run supply curve for a perfectly competitive,constant-cost industry

The price a perfectly competitive firm receives for its output

Which of the following statements is correct?

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.Assuming the firm is profit maximising,the amount of its total fixed cost is -.

Figure 7.2 -Refer to Figure 7.2.What happens if the firm produces more than Q4 units?

Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?

A perfectly competitive industry achieves allocative efficiency because

Which of the following characteristics of a farmers' market make it a good example of a perfectly competitive market?

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 P1,the firm would produce

Why are both buyers and sellers price takers in a perfectly competitive market?

Which of the following describes a situation in which a good or service is produced at the lowest possible cost?

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 7.16 -Refer to Figure 7.16.If the market price is P₁,the allocatively efficient output level is -.

Figure 7.2 -Refer to Figure 7.2.What happens if the firm produces more than Q₄units?

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 P₁,the firm would produce